SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
|_| TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934. FOR THE TRANSITION PERIOD _____________ TO ____________.
Commission File Number: 0-20727
Novoste Corporation
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-2787476
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4350-C International Blvd., Norcross, GA 30093
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: (770) 717-0904
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Rights to Purchase Preferred Shares
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosures of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |X|.
As of February 28, 1997, there were 8,430,375 shares of Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the Registrant was approximately $67,435,826 based upon the closing sales
price of the Common Stock on February 28, 1997 on the NASDAQ National Market.
Shares of Common Stock held by each officer, director, and holder of five
percent or more of the Common Stock outstanding as of February 28, 1997 have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information is incorporated into Part III of this report by reference to
the Proxy Statement for the Registrant's 1996 annual meeting of stockholders to
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this Form
10-K.
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NOVOSTE CORPORATION
FORM 10-K
INDEX
PART I
Item 1. Business
The Company
Industry Overview
Novoste Solution
The Beta-CathTM System
Other Intracoronary Radiation Therapy Approaches
Novoste Business Strategy
Clinical Trial and Regulatory Status
Product Development
Marketing and Distribution
Manufacturing and Materials
Competition
Patents and Proprietary Technology
Government Regulation
Third-Party Reimbursement
Product Liability Insurance
Employees and Consultants
Additional Risk Factors
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of The Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
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PART I
Item 1. BUSINESS
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many uncertainties and risks which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties and risks include, but are not limited to, whether the Beta-CathTM
System, the Company's primary product in development, will prove safe and
effective; whether and when the Company will obtain approval of the Beta-Cath TM
System from the United States Food and Drug Administration (FDA) and
corresponding foreign agencies; the Company's need to achieve manufacturing
scale-up in a timely manner, and its need to provide for the efficient
manufacturing of sufficient quantities of its products; the Company's dependence
on the Beta-Cath TM System as the primary source of future revenue; the lack of
an alternative source of supply for the radiation source materials used in the
Beta-CathTM System; the Company's patent and intellectual property position; the
Company's need to develop the marketing, distribution, customer service and
technical support and other functions critical to the success of the Company's
business plan; the effectiveness and ultimate market acceptance of the
Beta-CathTM System; limitations on third party reimbursement; and competition
between rival developers of restenosis reduction products. These risks are
discussed under "Item 1 - Business" and "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations." Additional risk
factors include those that may be set forth in reports filed by the Company from
time to time on Forms 10-Q and 8-K. The Company does not undertake any
obligation to update any forward-looking statements.
The Company
Novoste, a development stage company with minimal revenues to date, was
incorporated in Florida in January 1987 and was first capitalized and commenced
operations in May 1992.
Novoste is developing the Beta-CathTM System, an intraluminal beta radiation
catheter delivery system designed to reduce the frequency of restenosis
subsequent to percutaneous transluminal coronary angioplasty ("PTCA"). The
Beta-CathTM System applies localized beta radiation to the site of the vascular
injury caused by a PTCA procedure and is designed to inhibit long-term cell
proliferation ("hyperplasia") and vascular remodeling, each primary causes of
restenosis. The Beta-CathTM System was developed in collaboration with certain
physicians at Emory University Hospital, including its Director of
Interventional Cardiology, Dr. Spencer B. King, III. The Company has completed
patient enrollment for a Phase I human clinical trial at Emory and Rhode Island
University Hospital under an Investigational Device Exemption ("IDE") granted by
the FDA to determine the clinical safety of the Beta-CathTM System for use in
coronary arteries. Sixteen of the twenty-three patients enrolled into the study
have now returned for their six month follow-up visit. Of these sixteen
patients, two have required an additional procedure at the original treatment
site.
Industry Overview
Coronary Artery Disease. Coronary artery disease is the leading cause of death
in the United States. More than 13 million people in the United States currently
have been diagnosed with coronary artery disease, which is generally
characterized by the progressive accumulation of plaque as a result of the
deposit of cholesterol and other fatty materials on the walls of the arteries.
The accumulation of plaque leads to a narrowing of the interior passage, or
lumen, of the arteries, reducing blood flow to the heart muscle. When
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blood flow to the heart muscle becomes insufficient, oxygen supply is restricted
and a heart attack and death may result. Each year more than 1 million
revascularization procedures are performed in the United States, and
approximately 1.8 million of such procedures are performed worldwide, to treat
coronary artery disease to increase blood flow to the heart muscle.
Coronary Artery Bypass Graft. Coronary artery bypass graft ("CABG") surgery was
introduced as a treatment for coronary artery disease in the 1950s, when
technology was developed to enable physicians to stop a patient's heart during
surgery. CABG is a highly invasive, open surgical procedure in which blood
vessel grafts are used to bypass the site of a blocked artery, thereby restoring
blood flow. CABG, still considered the most effective and long-lasting treatment
for coronary artery disease, is generally the primary treatment for severe
coronary artery disease involving multiple vessels. In addition, CABG is often a
treatment of last resort for patients who have undergone other less invasive
procedures but require reintervention. However, CABG has significant
limitations, including medical complications, such as stroke, multiple organ
dysfunction, inflammatory response, respiratory failure and post-operative
bleeding, each of which may result in death. In addition, CABG is a very
expensive procedure and requires a long recovery period. In the United States,
the average cost of undergoing CABG is approximately $36,000, the average
post-operative hospital stay following CABG is approximately five to seven days
and the average recuperation period following discharge from the hospital is
approximately six to eight weeks. In 1995, approximately 400,000 CABG procedures
were performed in the United States. Currently, several minimally invasive
surgical techniques are being developed to lessen the cost and trauma of CABG
procedures.
PTCA and Other Catheter Based Technologies. Since its clinical introduction in
the late 1970s, PTCA has emerged as the principal, less invasive alternative to
CABG. PTCA is a procedure performed in a cath lab by an interventional
cardiologist. During PTCA, a guidewire is inserted into a blood vessel through a
puncture in the leg (or arm in some cases) and guided through the vasculature to
a diseased site in the coronary artery. A balloon-tipped catheter is then guided
over the wire to the deposit of plaque ("lesion") occluding the artery. Once the
balloon is positioned across the lesion inside the vessel, the balloon is
inflated and deflated several times. Frequently, successively larger balloons
are inflated at the lesion site, requiring the use of multiple balloon
catheters. The inflation of the balloon cracks or reshapes the plaque and the
arterial wall, thereby expanding the arterial lumen. Though injury to the
arterial wall often occurs under balloon pressure, PTCA typically results in
increased blood flow without the actual removal of any plaque. In 1996, it is
estimated that more than 500,000 PTCA procedures were performed in the United
States and approximately another 450,000 procedures were performed outside the
United States. The average cost of each PTCA procedure in the United States is
approximately $15,000, or less than one-half of the average cost of CABG, and
the length of stay and recuperation period are substantially less than those
required for CABG.
Though PTCA has grown rapidly as a highly effective, less invasive therapy to
treat coronary artery disease, the principal limitation of PTCA is the high rate
of restenosis, a re-narrowing of a treated artery, which generally requires
reintervention. Due to the effects of restenosis, the long-term
cost-effectiveness of PTCA has not proven greater than that of CABG for
multi-vessel diseases. Studies have indicated that, within six months after
PTCA, between 25% and 45% of PTCA patients experience restenosis. In addition,
45% of patients with multi-vessel coronary artery disease who received PTCA have
been shown to require reintervention within three years of treatment. Finally,
although the average cost of PTCA is less than one-half of that of CABG, a
recent study indicated that three years after the procedure, PTCA has no cost
advantage over CABG due to the need for subsequent interventional treatment.
A variety of other catheter-based, minimally invasive, interventional devices
for coronary artery disease have been developed in an attempt to reduce the
frequency of restenosis following PTCA. These devices include atherectomy
devices (catheter devices that cut and remove plaque from the arterial wall),
rotational ablation devices (catheter devices which use a rotating burr to
remove plaque), and laser catheter devices (devices that use laser energy to
reduce plaque in arteries). Although these new approaches to coronary
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artery disease have been found to be effective in certain lesion types and in
certain locations in the coronary arteries, like PTCA they also exhibit high
rates of restenosis.
Pathology of Restenosis. Clinical restenosis is typically defined as a
renarrowing of a coronary artery within six months of a revascularization
treatment to less than 50% of its original size. Restenosis is a vascular
response to arterial injury and occurs frequently after a revascularization
procedure, which stretches coronary arteries or otherwise damages the treated
segment of the artery. Due to multiple mechanisms controlling vascular repair,
restenosis may occur within a short period after a revascularization procedure
or may develop over the course of months or years. Restenosis that occurs
shortly after a revascularization procedure is usually attributed to elastic
recoil (acute loss of lumen diameter) of the artery.
Longer term, restenosis may result from excessive proliferation of cells at the
treatment site ("hyperplasia") or from a generalized geometric remodeling of the
arterial segment, the causes of which are not well understood. Hyperplasia is a
physiological response to injury, similar to scarring which occurs in wound
healing. In response to an arterial injury from revascularization, the body sets
off a biochemical response to repair the injury site and protect it from further
harm. This response will include a signal to adjacent cells of the arterial wall
to multiply. Often this cell proliferation goes unchecked, resulting in a much
thicker and inelastic arterial wall and in reduced blood flow. The Company
believes that hyperplasia and vascular remodeling are responsible for a large
portion of the overall effect of restenosis.
Coronary Stenting. Coronary stents are expandable, implantable metal devices
permanently deployed at a lesion site. Stents maintain increased lumen diameter
by mechanically supporting the diseased site in a coronary artery. Of all the
non-surgical treatments which have sought to improve upon PTCA, stents have
demonstrated the best results in reducing the rate of restenosis. In a typical
stent procedure, the artery is pre-dilated at the lesion site with a balloon
catheter and the stent is delivered to the site of the lesion and deployed with
the use of a second balloon catheter, which expands the stent and firmly
positions it in place. This positioning is often followed by a third dilatation
using a high pressure balloon to fully expand and secure the stent. Once placed,
stents exert radial force against the walls of the coronary artery to enable the
artery to remain open and functional.
Recent studies have concluded that the rate of restenosis in patients who
receive coronary stents following PTCA is approximately 30% lower than in
patients treated only by PTCA. Additional clinical studies with stents which
incorporate a specialized coating may show a greater reduction in the rate of
restenosis. Stents appear to be effective in reducing the frequency of
restenosis resulting from elastic recoil and vascular remodeling but they
increase hyperplasia.
The use of stents has grown rapidly since commercial introduction in the United
States in 1994, and it is estimated that they were utilized in approximately
150,000 of the approximately 500,000 PTCA procedures performed in the United
States in 1996. It is also estimated that over 600,000 stents were utilized
worldwide in 1996. Despite their rapid adoption, stents have certain drawbacks.
Not only are they permanent implants which may result in unforeseen long-term
adverse effects, but they cannot be used in cases where the coronary arteries
are too tortuous or too narrow. In addition, the use of stents significantly
increases the cost of a PTCA procedure and restenosis may still occur, often
requiring reintervention in patients who receive stents.
The Novoste Solution
The Company's Beta-Cath System is designed to reduce the frequency of restenosis
following PTCA by applying localized beta radiation to the treatment site in the
coronary artery. The Beta-Cath System is designed to be safe and cost-effective
and to fit well with techniques currently used by interventional cardiologists
in the cardiac catheterization lab. The Beta-Cath System targets the primary
causes of restenosis by attempting to prevent or inhibit hyperplasia and
long-term vascular remodeling. Its localized
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beta radiation sources can be handled with little risk to the health care
workers or to the patients because the penetration of electrons associated with
beta radiation is quite limited and easily shielded. The Company expects that
the Beta-Cath System will provide significant cost savings, principally by
reducing the costs associated with reintervention required following PTCA and
coronary stenting.
The Beta-Cath System is founded on the Company's belief, based on recent
clinical and pre-clinical studies, that localized beta radiation is likely to
reduce coronary artery restenosis rates by inhibiting cell proliferation which
occurs in response to PTCA. Radiation has been used therapeutically in medicine
for more than 50 years, and is extensively used for the treatment of
proliferative cell diseases, such as cancer. Cancer therapy has primarily
involved the use of gamma radiation, which is highly penetrating and may be
dangerous unless handled and used with great care. The Company has designed the
Beta-Cath System to use beta radiation, which is much less penetrating and thus
easier to use and control than gamma radiation while providing equivalent
efficacy. Beta radiation has been used less frequently in medicine (primarily in
a topical application to treat certain skin and eye disorders) because of its
more limited depth of penetration, but is viewed by the Company as well-suited
for intraluminal use following PTCA, where the objective is to treat the inner
surface and the wall of the artery with minimal exposure to adjacent tissues.
The Company is aware of five coronary clinical studies of the use of
intraluminal radiation to reduce the frequency of restenosis in humans. Three of
these studies have been conducted outside the United States: two used gamma
radiation delivered using methods and equipment designed for use in cancer
therapy, and one applied beta radiation using a wire positioned through the
lumen of a special balloon catheter. The results of the fourth study which was
conducted in the United States and used a combination of stents and gamma
radiation, were recently published in November 1996. In this study a total of 26
patients were treated with gamma radiation and the results showed a significant
reduction in restenosis compared to a control group of 29 patients. Enrollment
for a fifth clinical study, performed in the United States using a beta emitting
radioactive stent, was recently completed in January 1997. However, no clinical
data has yet been published for this study. These studies, while involving a
limited number of patients, tend to show a reduction in restenosis rates and no
adverse effects from intraluminal radiation. In addition, the Company's animal
studies, conducted at Emory University under the direction of Dr. Spencer King
and his colleagues, Ron Waksman, M.D., Ian Crocker, M.D. and Keith Robinson,
Ph.D., have also supported the conclusion that intraluminal radiation, and
particularly beta radiation, can be effective in reducing the frequency of
restenosis whether used alone following PTCA or as a combination therapy with
coronary stenting. See "--Clinical Trial and Regulatory Status."
The Beta-Cath System
The Beta-Cath System is designed to deliver localized, intraluminal beta
radiation to reduce the frequency of restenosis following PTCA.
The primary components of the Beta-Cath System are:
Radiation Source Train. The beta radiation administered by the Beta-Cath
System emanates from a "train" of several miniature cylindrical sealed
sources ("radiation sources") containing Strontium 90 ( Strontium/
Yttrium), a beta emitting radioisotope. The use of beta, rather than gamma,
radiation is intended to make the Beta-Cath System safer and less invasive.
The delivered dose of the Company's radiation sources has been validated by
standards established by the U.S. Department of Commerce National Institute
of Standards and Technology, enabling a physician to accurately determine
appropriate dosing levels. In addition, due to their long half lives
(approximately 28 years) and because they will not come into contact with a
patient's blood or tissue, the radiation sources are expected to be reused
for numerous patients. Beta radiation from the Strontium 90 source can be
easily shielded from health care workers by the use of approximately
one-half inch thick quartz in the transfer device.
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Transfer Device. The transfer device is a multiple use, hand held
instrument used to store the radiation sources when not in use. The
transfer device (i) transfers the radiation sources to and from the
delivery catheter via a mechanical gating system, (ii) contains a switching
device that directs hydraulic force to move the radiation sources to or
from the treatment zone and (iii) completely shields the beta radiation
energy from health care workers while being handled in the hospital
setting.
Delivery Catheter. The delivery catheter is a single use, disposable,
multi-lumen catheter which provides a pathway for the radiation sources to
be rapidly delivered and retrieved from the coronary arterial segment to be
treated. The delivery catheter is positioned by advancing it over the same
guidewire used during the immediately preceding PTCA procedure. The
radiation sources are delivered through a dual lumen closed hydraulic
circuit, which is powered by a standard syringe.
The Beta-Cath System is intended to be used in a cath lab by an interventional
cardiologist immediately after a PTCA procedure. The cardiologist uses a
previously positioned guidewire utilized in the PTCA procedure to direct the
delivery catheter into the vasculature of the patient until the treatment zone
of the delivery catheter reaches the targeted site. The radiation sources are
hydraulically driven from the transfer device to the target site in a matter of
seconds through the radiation source train lumen of the delivery catheter. The
radiation sources remain at the targeted site for less than five minutes to
deliver a predetermined dose of radiation. They are then returned, through the
same lumen, by the use of positive hydraulic pressure applied through the
delivery catheter's fluid lumen. Upon completion of the procedure, the train of
radiation sources is stored safely inside the transfer device and delivered to a
designated radiation storage site within the hospital for safekeeping before use
with another procedure. The procedure currently requires the participation of
both an interventional cardiologist and a physician licensed to prescribe
radiation therapy. While the need for two physicians is expected to result in
increased costs associated with the Beta-Cath System, the Company believes the
Beta-Cath System will be cost-effective, principally by reducing the costs
associated with reinterventional procedures.
The Company believes the Beta-Cath System, when fully developed and tested, will
have the following advantages:
Non-implantable, Site-specific Therapy. The Beta-Cath System was
designed to accurately treat only the area required to prevent
restenosis without leaving a permanent implant in the body. The length
of the radiation source train may be varied to coincide with lesion
length.
Utilization of Existing PTCA Techniques. Although intracoronary
radiation is a new concept in coronary artery disease treatment, the
Beta-Cath System was designed to be easily adopted and used by the
cardiologist. The delivery catheter is very similar to a balloon
angioplasty catheter, and it is positioned by advancing it over the
guidewire already in place from the previous PTCA procedure.
Flexibility. The cylinders that make up the Beta-Cath System's
radiation source train, as well as the Beta-Cath System's delivery
catheter material, are designed to be very flexible, giving the
Beta-Cath System a very tight radius of curvature and the capability
of navigating tortuous coronary anatomies.
Short Procedure Times. The Beta-Cath System was designed to enhance
patient safety and comfort by delivering the recommended dosage in
less than five minutes of radiation exposure time per lesion.
Multiple Use System. The radiation source train can be reused for
numerous patients due to the long half-life of the isotope and because
the source train does not come into contact with the patient's blood.
As a result, inventory planning will be very straightforward,
procedure costs will
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be attractive and last minute treatment decisions can be made. In
addition, a single delivery catheter and source train may be used to
treat multiple lesions within the same patient.
Ease and Accuracy of Dosing. Because of the long half-life of the
Company's radiation sources, prescribed treatment times will remain
stable over the approved shelf life of the isotope. Intracoronary
radiation systems which utilize short half-life isotopes are likely to
require complex case by case dose calculations based on the current
decay state of the isotope.
Designed for Safety. The Beta-Cath System utilizes localized beta
radiation, which results in total body radiation exposure
significantly less than that received during routine x-ray during
PTCA. Other safety mechanisms include: a closed source train lumen,
special locking mechanisms to connect the delivery catheter to the
transfer device and sufficient shielding in the transfer device to
protect health care workers from radiation exposure.
Other Intracoronary Radiation Therapy Approaches
The Company is aware of two other types of medical devices currently under
development to deliver intracoronary radiation therapy: (i) a radioactive tipped
guidewire, and (ii) a radioactive stent. Guidewires with gamma-emitting
radioactive tips have been used for some time in cancer therapy, and some
researchers have used them to deliver intracoronary radiation to prevent
restenosis. Gamma radiation is more penetrating and therefore more hazardous
than beta radiation. Accordingly, this method requires the automated
administration of radiation with a complex and expensive piece of computerized
equipment (an "afterloader"), while healthcare workers are out of the room
behind a protective barrier. The Company believes this method is impractical,
because the use of gamma radiation subjects patients and healthcare workers to
excessive radiation exposure and the use of an afterloader does not fit easily
into the cath lab. The Company is also aware of at least one company developing
a beta radiation tipped guidewire, perhaps to be used in conjunction with an
afterloader.
Novoste is also aware of at least one company developing a radioactive stent. In
theory, such a stent would address both elastic recoil and vascular remodeling
and inhibit longer term hyperplasia. However, this method retains the problems
inherent in leaving a permanent implant in the coronary artery. In addition,
this approach might not effectively treat areas of the artery beyond the ends of
the stent, areas which have been known to be restenotic. Finally, because it is
a permanent implant, a radioactive stent would likely require the use of a
radiation source with a short half-life. As a result, a hospital would have
difficulty keeping an inventory of stents that have sufficient radioactivity at
the time of implant.
The Novoste Business Strategy
The Company's objective is to become the leader in the commercialization of
intravascular radiation devices for the treatment of restenosis. Elements of the
Company's strategy include:
Achieve First to Market Position in the United States. Novoste intends
to be the first to market in the United States an intracoronary
radiation device to treat coronary restenosis. The Company has
completed enrollment in a human clinical trial in the United States
under an IDE granted by the FDA to determine the clinical safety of
the Beta-Cath System for use in coronary arteries. The Company expects
to file for a second IDE study, to determine the clinical efficacy of
the Beta-Cath System, prior to March 31, 1997.
Establish Beta Radiation Therapy as the Standard Therapy to Prevent
Restenosis. The Company's strategy is to introduce the Beta-Cath
System into the cath lab as standard therapy to reduce the frequency
of restenosis following PTCA, either on a stand-alone basis or in
conjunction with coronary stenting. The Company seeks to establish
interventional cardiologists as the primary providers of this therapy
and plans to target top tier medical institutions and
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leading cardiologists for sale of the Beta-Cath System. In addition,
the Company intends to conduct intensive physician training seminars
to familiarize the cardiologists with the use of the Beta-Cath System.
International Commercialization. The Company seeks to obtain required
regulatory approvals as early as possible, particularly in countries
with favorable regulatory environments. The Company anticipates
marketing the Beta-Cath System in Canada and Europe through
international distributors or corporate partners prior to its receipt
of pre-marketing approval in the United States. A human clinical
safety study, similar to the initial study recently completed at Emory
University Hospital and Rhode Island Hospital, was commenced at a
single site in Canada on February 19, 1997, and an additional study is
expected to commence in The Netherlands in April 1997.
Establish Radiation Therapy for Peripheral Vascular Applications.
Restenosis is common following angioplasty of the peripheral arteries.
In addition, a similar phenomena frequently occurs in veins adjacent
to an arterial-venous shunt used for patients undergoing hemodialysis
for end stage renal disease. The Company intends to leverage its core
catheter and localized radiation technologies to expand its product
offerings to other vascular markets where cell proliferation is of
clinical significance.
Protect and Enhance Proprietary Technology. The Company believes that
its patent position may offer a significant competitive advantage. The
Company has received a Notice of Allowance covering key aspects of the
Beta-Cath System. The Company has also filed a counterpart application
under the Patent Cooperation Treaty preserving the Company's right to
file applications in the European Patent Office and certain other
countries. The Company intends to obtain further protection of its
proprietary technology and to defend its intellectual property rights
against infringement.
Clinical Trial and Regulatory Status
In June 1995 the Company applied for an IDE to conduct a human clinical trial to
determine the short-term clinical safety of the Beta-Cath System for use in the
coronary arteries, and received such approval 29 days later. The IDE was based
upon the Company's animal studies, conducted at Emory University Hospital under
the direction of Dr. Spencer King and his colleagues Drs. Ron Waksman, Ian
Crocker and Keith Robinson. These studies have supported the conclusion that
intraluminal radiation, and particularly localized beta radiation, may be
effective in reducing the frequency of restenosis whether used alone or as a
combination therapy with coronary stenting. The Company has sponsored three such
studies, the results of which have been published in three articles in
Circulation, a primary cardiology journal. The objectives of the first two sets
of animal experiments were to evaluate the effect of intraluminal gamma and beta
radiation on neointimal cell formation in pig coronary arteries following
balloon overstretch injury, a widely accepted method of modeling the restenosis
response, and to determine whether the results would be similar using beta or
gamma radiation. In both experiments, arteries treated with beta or gamma
radiation equally demonstrated significantly decreased neointimal formation
compared with control arteries, and a dose-response relationship was
demonstrated. The objective of the third set of experiments was to determine
whether intravascular radiation prior to stent implantation would also impact
neointimal formation. Both gamma radiation and beta radiation were used with
equal effectiveness to reduce the levels of neointimal formation after stent
implantation.
As approved in July 1995, the IDE authorized the Company to conduct a single
site human clinical trial at Emory University Hospital on a total of 15
patients, each of whom had a single vessel de novo (previously untreated)
lesion. In April 1996 the IDE was amended to authorize the Company to conduct a
parallel feasibility study utilizing substantially the same protocol on a total
of 8 patients at a second site at Rhode Island Hospital in Providence. The IDE
protocol provided that the patients be treated with standard PTCA
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and immediately thereafter with intravascular radiation using the Beta-Cath
System. A follow-up review of the patient 30 days after treatment and a
follow-up angiogram six months after the initial treatment are being performed
to observe the treated artery. The IDE had four objectives: (i) to examine the
safety of different dosing parameters; (ii) to evaluate the feasibility of the
Beta-Cath System to deliver beta radiation to the coronary arteries; (iii) to
confirm the operational specifications of the Beta-Cath System; and (iv) to
compare the incidence of restenosis following PTCA coupled with the Beta-Cath
System to results of a comparable trial showing the incidence of restenosis
following PTCA alone.
As of December 31, 1996 the enrollment at both sites had been completed and a
total of 23 patients had been treated. As of February 4, 1997, 16 of the 23
patients enrolled into the study had returned for their six month follow-up
visit. Of these 16 patients, two have required an additional procedure at the
original treatment site. On February 19, 1997, the Company commenced a similar
feasibility study in Canada and expects to commence an additional study in The
Netherlands in April 1997. The Company anticipates commencing a multicenter,
triple-blinded, randomized human clinical trial in the United States in 1997,
subject to FDA approval of an additional IDE. There can be no assurance that
these or other trials will demonstrate the safety or efficacy of the Beta-Cath
System.
Product Development
Research and development activities are performed by a 20 person product
development team. The Company has also retained consultants to assist in many
research and development activities, including design of the Beta-Cath System,
designing, conducting and monitoring the clinical trials relating to the
Beta-Cath System and advising on key aspects of radiation health physics and
dosimetry. On June 27, 1996 the Company signed an agreement with a medical
diagnostic engineering, development and design company to provide products and
services to be used in the Company's product development. The agreement calls
for aggregate payments of approximately $1.3 million through April 1997, of
which $277,000 was paid in 1996.
The focus of the Company's current development efforts is to design future
generation components of the Beta-Cath System. The commercial design of the
delivery catheter will have a smaller outer diameter and be more flexible than
the design currently being used in clinical trials. Likewise, the transfer
device will be modified to have a more ergonomic design and to incorporate
additional safety features. Future development efforts will focus on modifying
the Beta-Cath System for use in peripheral vascular applications and potentially
in arterial-venous shunt applications. There can be no assurance that the
Company will be successful in developing these or other products.
Research and development expenses for the years ended December 31, 1996, 1995,
and 1994 were approximately $4.6 million, $2.1 million, and $1.4 million,
respectively.
In addition to the resources dedicated to the product development process, the
Company has an internal regulatory affairs and clinical monitoring staff, which
has responsibility for establishing, monitoring, collecting and analyzing data
relating to clinical trials and regulatory approvals for the Beta-Cath System in
the United States and abroad.
Marketing and Distribution
The Company anticipates marketing the Beta-Cath System through a direct sales
force in the United States and through a combination of international
distributors and corporate marketing partners outside the United States. If
marketing approval is obtained, the Company plans to focus its United States
marketing efforts on a top tier of approximately 200 hospitals where the Company
believes a vast majority of the PTCA procedures in the United States are
performed, and on leading cardiologists at those institutions. Through this
effort the Company initially aims to identify well-respected clinical supporters
for the Beta-Cath System and to leverage their reputation in the clinical
community to generate wider demand. The Company
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will also conduct physician training seminars to educate physicians about the
Beta-Cath System. The Company believes that it can market the Beta-Cath System
to these hospitals and cardiologists with a moderately sized direct sales
organization, initially consisting of the Vice President of Marketing and Sales
and approximately 8 to 10 sales representatives, augmented by a small number of
clinical specialists. The Company's business and future operating results will
depend in significant part upon its ability to attract and retain skilled sales
and marketing personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting or
retaining such personnel. The Company's inability to attract and retain skilled
sales and marketing personnel, as needed, could materially adversely affect the
Company's business, financial condition and results of operations. In addition,
the Company plans to utilize distributors and/or one or more corporate marketing
partners to market products outside the United States. The Company believes such
distribution or corporate partnering arrangements will be cost-effective, will
be implemented more quickly than a direct sales force established by the Company
in such countries and will enable the Company to capitalize on local marketing
expertise in such countries.
The Company intends to select one or more established market leaders in the
radiation isotope business to inventory and deliver the radiation sources and to
provide related training, delivery, testing and disposal services to the
purchasing hospital. Novoste does not intend to inventory or deliver the
radiation sources used in the Beta-Cath System. There can be no assurance that
the Company will be able to secure any arrangements with international
distributors, corporate marketing partners or radiation isotope providers on
satisfactory terms or at all.
Manufacturing and Materials
Near term the Company will focus its manufacturing resources on the production
of the Beta-Cath System. The Company anticipates that it will manufacture the
delivery catheter component of the Beta-Cath System directly and manufacture the
transfer device jointly with third parties. The radiation source trains are
being supplied by a third party. The Company intends to manufacture its products
at its 25,600 square foot facility in Norcross, Georgia. The Company believes
that, if marketing approvals of the Beta-Cath System are obtained, it will be
able to utilize its existing facility and the expertise of its management to
manufacture commercial quantities of the catheter-based components of the
Beta-Cath System at a reasonable cost. However, to date, the Company has not yet
commercialized any of its products and its manufacturing activities have
consisted of building a small number of prototypes of the Beta-Cath System for
use in pre-clinical and clinical trials, and the Company does not have
experience in manufacturing the Beta-Cath system in commercial quantities.
The Company currently executes all critical assembly operations in controlled
environment rooms in which bacterial and airborne particulate levels are
monitored. The Company believes that its current space will be sufficient to
serve its needs through at least 1998. The Company could rely on some outside
sources for catheter components and from time to time the Company could
experience shortages of certain supplied materials that could significantly
affect its ability to produce enough product to satisfy market demand. As the
Company grows, it will be required to scale-up its production and to increase
its manufacturing capacity.
Any products of the Company, for which FDA clearances or approvals have been
obtained, must be manufactured in accordance with Good Manufacturing Practices
("GMP") regulations which would impose certain procedural and documentation
requirements upon the Company with respect to manufacturing and quality
assurance activities. The Company will rely on independent suppliers for certain
components of the Beta-Cath System. Such components are either standard
throughout the industry or will be built to the Company's specifications. All
suppliers of such components also must be in compliance with GMP regulations.
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The Company has obtained all of its requirements of radiation source materials
pursuant to an exclusive agreement (the "Supply Agreement") with a single
supplier, Bebig Isotopentechnik und Umweltdiagnostik GmbH, a German corporation
(the "Supplier"). Under the Supply Agreement, as amended on November 15, 1996,
the Company agreed to advance the supplier a monthly investment grant of 100,000
Deutsche Mark (approximately $65,000) for a period of 15 months from November
1996 through March 1998 to build and equip a production site for the exclusive
production of radioactive materials for the Company. The supplier has agreed to
manufacture radiation source "trains" at an agreed upon base price. The Supplier
is required to comply with various regulatory requirements with respect to the
supply of radiation sources.
Under the Supply Agreement, which has an initial term ending in the year 2000
and renews automatically for one year unless notice of termination is given six
months prior to the end of each calendar year, the supplier has agreed not to
sell, lease, license or otherwise transfer radioactive sources of a similar
isotope to any other party for use in the treatment of restenosis. The Company,
in turn, has agreed not to purchase, lease, or otherwise acquire directly or
indirectly more than 30% of its annual requirement for radioactive sources of
"like" isotope for use in the treatment of restenosis from any other party.
Although the Supply Agreement permits the Company to use an alternative source
for 30% of its annual isotope requirements, the Company believes that because of
the technical expertise and capital investment required to manufacture the
radiation source materials, it would be extremely difficult and expensive to
find an alternate source of supply in the event that the Supplier is unable to
provide the materials. In addition, portions of the process used to manufacture
the materials may be proprietary to the Supplier, who has no obligation to make
any of its know-how or technology available to any potential alternate source of
supply.
The Company holds an option to purchase those tangible and intangible assets of
the supplier used or useful in producing the radioactive isotopes sold to the
Company by the supplier in connection with the Beta-Cath System. The option is
exercisable at any time on or prior to August 22, 2002, for $5,000,000, 50% of
which is payable upon exercise and the balance in 12 equal consecutive monthly
installments following such exercise, and provides that the $90,000 payment made
to obtain the option and the aforementioned investment grants of 1.5 million
Deutsche Marks, to the extent paid at the time of exercise, will be credited
against the purchase price of the assets. Upon the exercise of the option, the
supplier is obligated for a period of up to three months, to assign personnel to
assist the Company in facilitating the transfer of the assets, both for purposes
of technical training and operations and for administrative and regulatory
matters relating to licensing and governmental approvals. Nevertheless, the
exercise of such option and the transfer of the required technology and
expertise to the Company or an alternative source would be costly, time
consuming, and uncertain of success.
While the Company anticipates that the radiation source materials it purchases
from the Supplier will be able to be used for numerous patients, the inability
of the Supplier to provide radiation source materials would limit the Company's
ability to increase its business beyond its then existing inventory of such
radiation source material. As a result of the foregoing, any failure or
disruption in the ability of the Supplier to provide the radiation source
materials could have a material adverse effect on the business, financial
condition and results of operation of the Company.
Competition
Competition in the medical device industry, and specifically the markets for
cardiovascular devices and devices to improve the outcome of coronary
revascularization procedures, is intense. Guidant Corporation, Boston Scientific
Corporation, Medtronic Inc. and Johnson & Johnson, among others, are developing
devices to improve the outcome of coronary revascularization procedures. Many
companies are developing therapies to reduce the frequency of restenosis.
Johnson & Johnson, among others, currently markets coronary stents which have
been successful in reducing the frequency of restenosis. Other companies,
including a private company Isostent, have various radiation therapy products
under development to reduce
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restenosis. In addition, drugs, gene therapy and other minimally invasive
catheter-based procedures are currently being developed. Many of the Company's
competitors and potential competitors have substantially greater capital
resources than does the Company and also have greater resources and expertise in
the areas of research and development, obtaining regulatory approvals,
manufacturing and marketing. There can be no assurance that the Company's
competitors and potential competitors will not succeed in developing, marketing
and distributing technologies and products that are more effective than those
developed and marketed by the Company or that would render the Company's
technology and products obsolete or noncompetitive. Additionally, there is no
assurance that the Company will be able to compete effectively against such
competitors and potential competitors in terms of manufacturing, marketing and
sales.
Any product developed by the Company that gains regulatory clearance or approval
will have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which the Company can develop
products, gain regulatory approval and reimbursement acceptance and supply
commercial quantities of the product to the market are expected to be important
competitive factors. In addition, the Company believes that the primary
competitive factors for products addressing restenosis include safety, efficacy,
ease of use, reliability, suitability for use in cath labs, service and price.
The Company also believes that physician relationships, especially relationships
with leaders in the interventional cardiology community, are important
competitive factors. Although the Company is the first company in the United
States to have initiated an FDA-approved human clinical trial of a radiation
system for reducing the frequency of restenosis, there can be no assurance that
the Company will be first to market such a system in the United States or to
market such a system effectively.
Patents and Proprietary Technology
The Company's policy is to protect its proprietary position by, among other
methods, filing United States and foreign patent applications. On February 25,
1997 the Company received a Notice of Allowance from the U.S. Patent and
Trademark Office ("USPTO"), indicating that the Company's first patent
application for its Beta-Cath system has been allowed for issuance as a United
States patent. Typically, a United States patent issues within a few months of
its Notice of Allowance. The Company has filed a counterpart application under
the Patent Cooperation Treaty preserving the Company's right to file
applications in the European Patent Office and certain other countries. The
Company also holds seven issued United States patents and one issued foreign
patent, and has nine United States patent applications pending and has filed, or
will file, counterpart applications in several foreign countries with respect to
other products. The Company employs a full time manager of intellectual property
to prepare invention records and to coordinate the prosecution of new
intellectual property.
There can be no assurance that the claims under the Company's pending U.S.
patent applications covering certain aspects of the Beta-Cath System will be
allowed, or if allowed, will offer any protection to the Company. In addition,
there can be no assurance that the Company's United States and foreign patents
or other pending applications will offer any protection or that they will not be
rejected, challenged, reexamined, invalidated or circumvented. In addition,
there can be no assurance that competitors will not obtain patents that will
prevent, limit or interfere with the Company's ability to make, use or sell its
products in either the United States or international markets.
The Company received a letter from NeoCardia, L.L.C. ("NeoCardia") dated July 7,
1995 in which NeoCardia notified the Company that NeoCardia is the exclusive
licensee of U.S. Patent No. 5,199,939 (the "Dake Patent") and requested that the
Company confirm that its products did not infringe the claims of the Dake
Patent. The Company had previously concluded based upon advice of patent counsel
that the Company's proposed Beta-Cath System would not infringe any valid claim
of the Dake Patent. On August 22, 1995, on behalf of the Company, its patent
counsel responded that the Company did not infringe the Dake Patent.
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The USPTO is currently reexamining the Dake Patent and on such reexamination
preliminarily rejected all claims of the Dake Patent. In accordance with the
reexamination procedure, in April 1996 the holder of the Dake Patent submitted a
response to the USPTO reasserting that the claims of the Dake Patent are valid
and submitting additional claims as well. A second reexamination request was
subsequently filed with the USPTO and the request was accepted. Both
reexamination requests have now been combined and are being reviewed by the same
examiner. Under the reexamination, the USPTO will again consider the
patentability of the claims and may confirm the patentability of the original
claims, allow new or amended claims which narrow or broaden the original claims,
or reject the claims once again. The holder of the Dake Patent has the right to
appeal any final rejection of its patent claims and the outcome of the
reexamination procedure cannot be predicted. Any or all claims of the Dake
Patent and new claims requested may be rejected or may be accepted and
confirmed. The validity of patent claims which survive a reexamination procedure
may be more difficult to challenge in a later dispute than claims which have
never been reexamined based upon the same prior art.
There can be no assurance that the Company's products will not infringe any
original, amended or new claims of the Dake Patent which survive the
reexamination proceeding, or that NeoCardia will not sue the Company for patent
infringement and obtain damages from the Company and/or injunctive relief
restraining the Company from commercializing the Beta-Cath System, or that the
Company will not be required to obtain a license from NeoCardia, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations or could result in cessation of the
Company's business.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement claims or litigation or interference
proceedings declared by the USPTO to determine the priority of inventions. The
defense and prosecution of intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are both costly and
time-consuming. Litigation may be necessary to enforce patents issued to the
Company, to protect trade secrets or know-how owned by the Company or to
determine the enforceability, scope and validity of the proprietary rights of
others. Any litigation or interference proceedings will result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties or require the Company to redesign its
products or processes to avoid infringement or prevent the Company from selling
its products in certain markets, if at all. Although patent and intellectual
property disputes regarding medical devices have often been settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. Furthermore, there can be no
assurance that the necessary licenses would be available to the Company on
satisfactory terms, if at all, or that the Company could redesign its products
or processes to avoid infringement. Any adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
the Company from manufacturing and selling its products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Patent applications in the United States are maintained in secrecy until patents
issue and patent applications in foreign countries are maintained in secrecy for
a period after filing. Accordingly, there can be no assurance that current and
potential competitors or other third parties have not or will not file
applications for, or have not or will not receive, patents and will not obtain
additional proprietary rights relating to materials or processes used or
proposed to be used by the Company.
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The Company has developed certain of its patent and proprietary rights relating
to the Beta-Cath System in conjunction with Emory University Hospital, a leader
in the use of intravascular radiation therapy. To obtain the exclusive rights to
commercialize the Beta-Cath System for the treatment of restenosis, the Company
entered into a license agreement with Emory, under which Emory assigned to the
Company all of Emory's rights to one pending U.S. patent application, as to
which Emory made no representation or warranty with respect to its ownership
thereof, and licensed other technology thereunder relating to the Beta-Cath
System, but made only limited representations as to the ownership of such other
technology. Under the agreement Emory will be entitled to royalty payments based
upon net sales of the Beta-Cath System. The term of the agreement runs through
the later of (i) the expiration of the last patent covered by the agreement to
expire or (ii) January 2016 (unless earlier terminated as provided in the
agreement). Any inventions developed jointly by personnel of the Company and
Emory during the term of the license agreement are owned jointly by the Company
and Emory. If the agreement were terminated by Emory as a result of the
Company's failure to pay such royalties or any other breach of its obligations
under such agreement, the Company's rights to use jointly owned patents
(including any patent covering the continuation-in-part application which has
been filed) would become non-exclusive, it would have no rights to practice
future patents owned exclusively by Emory and the Company could be required by
Emory to cooperate in licensing the pending U.S. patent application and its
foreign counterparts to third parties so that they would be able to
commercialize and sell the Beta-Cath System.
All of the physicians on staff at Emory who were involved in the development of
the Beta-Cath System, including Spencer B. King, III, M.D., have assigned their
rights in the technology, if any, to Novoste and/or Emory.
In addition, the Company has entered into a license agreement with Dr. King
pursuant to which Dr. King is entitled to receive a royalty on the net sales of
the Beta-Cath System (excluding consideration paid for the radioactive isotope),
subject to a maximum of $5,000,000 to be paid to Dr. King, in exchange for the
right granted thereunder to the Company to use his name in connection with sales
and marketing of the Beta-Cath System.
The Company typically obtains confidentiality and invention assignment
agreements in connection with employment, consulting and advisory relationships.
These agreements generally provide that all confidential information developed
or made known to the individual by the Company during the course of the
individual's relationship with the Company, is to be kept confidential and not
disclosed to third parties, except in specific circumstances. There can be no
assurance, however, that these agreements will provide meaningful protection or
adequate remedies for the Company in the event of unauthorized use, transfer or
disclosure of such information or inventions. Furthermore, no assurance can be
given that competitors will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
proprietary technology, or that the Company can meaningfully protect its rights
in unpatented proprietary technology.
Government Regulation
United States
The Company's Beta-Cath System is regulated in the United States as a medical
device. As such, the Company is subject to extensive regulation by the FDA and
in some instances by foreign governments. The FDA regulates the clinical
testing, manufacture, labeling, distribution and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals,
a recommendation by the FDA that the Company not be permitted to enter into
government contracts and criminal prosecution. The FDA also has the authority to
request repair, replacement or refund of the cost of any device manufactured or
distributed by the Company.
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In the United States, medical devices are classified into one of three classes
(Class I, II or III) on the basis of the controls deemed necessary by the FDA to
reasonably assure their safety and efficacy. Under FDA regulations Class I
devices are subject to general controls (for example, labeling, premarket
notification and adherence to GMPs) and Class II devices are subject to general
and special controls (for example, performance standards, patient registries,
and FDA guidelines). Generally, Class III devices are those that must receive
premarket approval by the FDA after evaluation of their safety and efficacy (for
example, life-sustaining, life-supporting and implantable devices, or new
devices that have not been found substantially equivalent to legally marketed
devices). The Beta-Cath System is a Class III device which will require
pre-market approval ("PMA") by the FDA prior to its commercialization.
A PMA application must be supported by valid scientific evidence which typically
includes extensive data, including preclinical and human clinical trial data to
demonstrate safety and efficacy of the device. If human clinical trials of a
device are required and the device presents a "significant risk," the sponsor of
the trial (usually the manufacturer or the distributor of the device) is
required to file an IDE application with the FDA prior to commencing human
clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA.
The PMA application must also contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling, advertising literature and training methods (if required).
Upon receipt of a PMA application, the FDA makes a threshold determination as to
whether the application is sufficiently complete to permit a substantive review.
If the FDA determines that the PMA application is sufficiently complete to
permit a substantive review, the FDA will accept the application for filing and
begin an in-depth review of the PMA. An FDA review of a PMA application
generally takes one to two years from the date the PMA application is accepted
for filing, but may take significantly longer. The review time is often
significantly extended by the FDA asking for more information or clarification
of information previously submitted. During the review period an advisory
committee, primarily comprised of clinicians, will likely be convened to review
and evaluate the application and provide recommendations to the FDA as to
whether the device should be approved. The FDA is not bound by those
recommendations. Toward the end of the PMA review process, the FDA generally
will conduct an inspection of the manufacturer's facilities to ensure that the
facilities are in compliance with the applicable GMP requirements.
If the FDA's evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA will either issue an approval letter or an
"approvable letter" containing a number of conditions which must be satisfied in
order to secure the final approval of the PMA. When and if those conditions have
been fulfilled to the satisfaction of the FDA, the agency will issue a PMA
approval letter authorizing commercial marketing of the device for certain
indications. If the FDA's evaluation of the PMA application or manufacturing
facilities is not favorable, the FDA will deny approval of the PMA application
or issue a "not approvable letter." The FDA may also determine that additional
clinical trials are necessary, in which case PMA approval could be delayed for
several years while additional clinical trials are conducted and submitted in an
amendment to the PMA. The PMA process can be expensive, uncertain and lengthy,
and a number of devices for which FDA approval has been sought by other
companies have never been approved for marketing.
To date the Company has obtained an IDE for a feasibility clinical trial to
collect data necessary to gain FDA approval to begin a multi-center, randomized,
prospective clinical trial needed to support a PMA application. There can be no
assurance as to when, or if, the Company will complete clinical trials of its
Beta-Cath System or that data from such trials, if completed, will be adequate
to support approval of a PMA. Furthermore, there can be no assurance that the
Company will be able to obtain PMA approval on a
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timely basis, or at all, and delays in the receipt of, or failure to receive,
such approvals would have a material adverse effect on the Company's business,
financial condition and results of operations, and could result in cessation of
the Company's business.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including record keeping requirements and reporting of adverse
experiences with the use of the device. Device manufacturers are required to
register their establishments and list their devices with the FDA and certain
state agencies, and are subject to periodic inspections by the FDA and certain
state agencies. The FDA Act requires devices to be manufactured in accordance
with GMP regulations which impose certain procedural and documentation
requirements upon the Company with respect to manufacturing and quality
assurance activities. The FDA has proposed changes to the GMP regulations that
would, among other things, require design controls and maintenance of service
records, which if finalized, would likely increase the cost of complying with
GMP requirements.
Because the Beta-Cath System utilizes radiation sources, its manufacture,
distribution, transportation, import/export, use and disposal will also be
subject to federal, state and/or local laws and regulations relating to the use
and handling of radioactive materials. Specifically, after PMA approval is
obtained, approval by the U.S. Nuclear Regulatory Commission ("NRC"), or an
equivalent state agency, of the Company's radiation sources for certain medical
uses will be required to commercially distribute the radiation sources to
licensed recipients in the United States. In addition, the Company and/or its
supplier of radiation sources must obtain a specific license from the NRC to
commercially distribute such radiation sources as well as comply with all
applicable regulations. The Company and/or its supplier of radiation sources
must also comply with NRC and U.S. Department of Transportation regulations on
the labeling and packaging requirements for shipment of radiation sources to
hospitals or other users of the Beta-Cath System. In addition, hospitals may be
required to obtain or expand their licenses to use and handle beta radiation
prior to receiving radiation sources for use in the Beta-Cath System. Comparable
radiation regulatory requirements and/or approvals are anticipated in markets
outside the United States. If any of the foregoing approvals are significantly
delayed or not obtained, the Company's business, financial condition and results
of operations could be materially adversely affected.
The Company is also subject to numerous federal, state and local laws relating
to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations now or in the future or that such laws or regulations will not have
a material adverse effect upon the Company's ability to do business.
Changes in existing requirements or adoption of new requirements or policies
could adversely affect the ability of the Company to comply with regulatory
requirements. Failure to comply with regulatory requirements could have a
material adverse effect on the Company's business, financial condition or
results of operations. There can be no assurance that the Company will not be
required to incur significant costs to comply with laws and regulations in the
future or that laws and regulations will not have a material adverse effect upon
the Company's business, financial condition or results of operations.
International
Sales of the Beta-Cath System outside the United States are subject to
regulatory requirements that vary from country to country. The time required to
obtain approval for sale in foreign countries may be longer or shorter than that
required for FDA approval and the requirements may differ. In addition, there
may be foreign regulatory barriers other than premarket approval (including
regulations concerning the distribution, use and handling of the radiation
sources), and the FDA must approve exports of devices that require a PMA but are
not yet approved domestically. The current rules provide that, in order to
obtain FDA export approval, the Company must provide the FDA with documentation
related to the medical
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device. On February 19, 1997 the Company commenced a feasibility study in Canada
and expects to commence an additional study in The Netherlands in April 1997. In
Europe, commencing in 1998 the Company will be required to obtain certifications
necessary to enable the CE mark to be affixed to the Beta-Cath System, to market
the Beta-Cath System throughout the European Union. Additionally, to market
products in Europe, the Company is required to maintain ISO 9001/EN 46001
certification subject to periodic surveillance audits.
Other countries in which the Company intends to market the Beta-Cath System may
adopt regulations in the future that could prevent the Company from marketing
its Beta-Cath System in those countries. In addition, the Company may be
required to spend significant amounts of capital in order to respond to requests
for additional information by foreign regulatory bodies or may otherwise be
required to spend significant amounts of capital in order to obtain foreign
regulatory approvals. Any such events could substantially delay or preclude the
Company from marketing the Beta-Cath System in foreign countries.
Third-Party Reimbursement
The Beta-Cath System, if approved for commercial sale, will be purchased
primarily by hospitals. Hospitals and physicians bill various third-party
payors, such as government health programs, private health insurance plans,
managed care organizations and other similar programs, for the health care
services provided to their patients. The FDA has classified the Beta-Cath System
as an experimental device and accordingly its use in the human clinical trials
will not be reimbursable under the Medicare program or by private insurers until
the PMA approval is achieved, if ever. The classification of the Beta-Cath
System as experimental will materially increase the costs of conducting clinical
trials in the United States, and such costs could have a material adverse effect
on the Company's business, financial condition and results of operations. Such
classification may cause the Company to conduct the majority of its clinical
trials outside the United States. Relying on foreign clinical trials may subject
the Company to certain risks, including the necessity to obtain FDA approval to
export the products from the United States, the risk that the FDA may not accept
data from certain foreign countries, the difficulty in identifying clinical
sites able to conform to FDA requirements, foreign medical regulations and
foreign radiation regulations. Even if the Beta-Cath System were to receive
approval for marketing by the FDA, there can be no assurance that third-party
payors will cover the Beta-Cath System, or, if covered, that third-party payors
will not place certain restrictions on the circumstances in which coverage will
be available. In addition, payors may deny reimbursement if they determine that
a product was not used in accordance with established payor protocol regarding
cost-effective treatment methods or was used for an unapproved indication.
Third-party payors are also increasingly challenging the prices charged for
medical products and services and in some instances have put pressure on medical
device suppliers to lower their prices. The Company is unable to predict what
changes will be made in the reimbursement methods used by third-party health
care payors. There can be no assurance that the Beta-Cath System will be
considered cost effective by third-party payors, that reimbursement for the
Beta-Cath System will be available or, if available, that payors' reimbursement
levels will not adversely affect the Company's ability to sell the Beta-Cath
System on a profitable basis. In addition, the cost of health care has risen
significantly over the past decade and there have been and may continue to be
proposals by legislators, regulators and third-party payors to curb these costs.
Failure by hospitals and physicians to obtain reimbursement from third-party
payors, changes in third-party payors' policies toward reimbursement for the
Beta-Cath System or legislative action could have a material adverse effect on
the Company's business, financial condition and results of operations.
Product Liability and Insurance
The business of the Company entails the risk of product liability claims.
Although the Company has not experienced any product liability claims to date,
there can be no assurance that such claims will not be asserted or that the
Company will have sufficient resources to satisfy any liability resulting from
such claims through 1996. Through December 31, 1996 the Company maintained
product liability insurance with coverage of an annual aggregate maximum of $2
million. Effective January 1997 this insurance was
18
<PAGE>
increased to $4 million. There can be no assurance that product liability claims
will not exceed such insurance coverage limits, that such insurance will
continue to be available on commercially reasonable terms or at all, or that a
product liability claim would not materially adversely affect the business,
financial condition or results of operations of the Company.
Employees and Consultants
As of December 31, 1996 the Company directly employed 35 full-time individuals.
Most of the Company's employees have prior experience with medical device or
pharmaceutical companies. The Company believes it maintains good relations with
its employees. None of the Company's employees is represented by a union or
covered by a collective bargaining agreement. The Company's success will depend
in large part upon its ability to attract and retain qualified employees. The
Company faces competition in this regard from other companies, research and
academic institutions and other organizations.
The Company maintains continuing relationships with a number of independent
consultants that have contributed to the development of the Company's products
and work on specific development projects. These relationships are integral to
the continued success of the Company and the generation of new products from the
research and development departments.
Executive Officers of the Company
The executive officers of the Registrant, who are elected by the board of
directors, are as follows:
Name Age Position
- ---- --- --------
Thomas D. Weldon.............41 President, Chief Executive Officer and
Director
Charles E. Larsen............45 Senior Vice President, Chief Technical Officer
and Director
David N. Gill................42 Vice President-Finance, Chief Operating
Officer, Chief Financial
Officer and Treasurer
Thomas K. Brooks.............40 Vice President, Sales, Marketing and Business
Development
Cheryl R. Johnson............34 Vice President, Corporate Planning and
Secretary
Joan M. Macdonald, Ph.D......39 Vice President, Regulatory and Clinical
Affairs
Jonathan J. Rosen, Ph.D.. (1)49 Vice President, Product Development
(1) Resigned as an officer effective February 28, 1997.
Thomas D. Weldon. Mr. Weldon co-founded the Company and has served as its
President and Chief Executive Officer and as a Director since its capitalization
in May 1992. Mr. Weldon co-founded and was President, Chief Executive Officer
and a Director of Novoste Puerto Rico Inc. ("Novoste Puerto Rico"), a
manufacturer of disposable cardiovascular medical devices, from 1987 to May
1992, prior to its sale. Previous responsibilities included management positions
at Arthur Young & Company and Key Pharmaceuticals. Mr. Weldon received a B.S. in
Industrial Engineering from Purdue University and an M.B.A. in Operations and
Systems Management from Indiana University.
Charles E. Larsen. Mr. Larsen co-founded the Company and has served as its
Senior Vice President and as a Director since its capitalization in May 1992.
Since February 28, 1997, Mr. Larsen has been Chief Technical Officer of the
Company, having served from May 1992 through February 1997 as its Chief
Operating Officer. Mr. Larsen co-founded and was Vice President and Director of
Novoste Puerto Rico from 1987 to May 1992. From 1983 through 1987, Mr. Larsen
was a manager of manufacturing engineering at Cordis Corporation. Mr. Larsen
received a B.S. in Mechanical Engineering from New Jersey Institute of
Technology.
19
<PAGE>
David N. Gill. Mr. Gill has served as the Company's Vice President of Finance,
Chief Financial Officer and Treasurer since July 1996 and as Chief Operating
Officer since February 28, 1997. From August 1995 to June 1996, Mr. Gill served
as Chief Financial Officer of SPEA Software AG. From 1992 to 1995 Mr. Gill
served as President and Director of Dornier Medical Systems, Inc. and from 1990
to 1992 as its Vice President of Finance. Mr. Gill received an M.B.A. from Emory
University and a B.S. degree in Accounting from Wake Forest University.
Thomas K. Brooks. Mr. Brooks has served as the Company's Vice President, Sales,
Marketing and Business Development since January 1995. From 1986 through
December 1994, Mr. Brooks served in various sales, marketing, and business
development positions with Boston Scientific Corporation, a manufacturer of
medical devices, most recently as manager of new business development. From 1983
through 1986, Mr. Brooks held various sales positions for Ethicon Endo-Surgery
Division of Johnson & Johnson. Mr. Brooks received a B.A. in Business
Administration from Monmouth College.
Cheryl R. Johnson. Ms. Johnson joined the Company in July 1992 as Director of
Marketing and Business Development and Secretary and has served as Director of
Administration and Business Development of the Company since January 1996. From
August 1989 to June 1992, Ms. Johnson worked in planning and business
development capacities at BOC Health Care, most recently as its business
development manager. Ms. Johnson received an M.B.A. from the Kellogg School at
Northwestern University and a B.S. degree in Chemical Engineering from the
Georgia Institute of Technology.
Joan M. Macdonald, Ph.D. Dr. Macdonald joined the Company in January 1994, as
its Director of Regulatory Affairs, and has been its Vice President, Regulatory
and Clinical Affairs since January 1996. From September 1990 through September
1993, Dr. Macdonald worked for CIBA Vision Corporation, a manufacturer of
ophthalmic products, having served most recently as Director, Worldwide
Regulatory Strategy. Dr. Macdonald received a Ph.D. degree in physiology from
the Medical College of Wisconsin, and M.S. and B.S. degrees in Zoology from the
University of Wisconsin and has currently completed more than 50% of the course
work for an M.P.H. degree at Emory University.
Jonathan J. Rosen, Ph.D. Dr. Rosen has served as Vice President, Product
Development of the Company since July 1992. From March 1990 until joining the
Company, Dr. Rosen was President and Director of CDX Corporation, a
publicly-traded medical device company. From 1979 through March 1990, Dr. Rosen
served in various senior management product development capacities at Johnson &
Johnson. Dr. Rosen received the following degrees: a Ph.D. in Biomaterials
Science from Case Western Reserve University, an M.S. in Business Policy from
Columbia University, and an M.S. in Materials Science and a B.S.E. in
Metallurgical Engineering from the University of Michigan. Mr. Rosen resigned as
an officer of the Company effective February 28, 1997.
Additional Risk Factors
LIMITED OPERATING HISTORY. The Company has a limited history of operations.
Since its inception in May 1992 the Company has been primarily engaged in
research and development of its Beta-Cath System. The Company has generated only
limited revenue and does not have experience in manufacturing, marketing or
selling its products in quantities necessary for achieving profitability. There
can be no assurance that the Company's product systems will be commercialized or
that the Company will achieve significant revenues from either international or
United States sales. In addition, there can be no assurance that the Company
will achieve or sustain profitability in the future.
HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES. The Company has experienced
significant operating losses since inception and as of December 31, 1996 had an
accumulated deficit of $13.4 million. The development and further
commercialization of the Company's current products and other new products, if
any, will require substantial development, clinical, regulatory, manufacturing
and
20
<PAGE>
other expenditures. The Company expects its operating losses to continue for at
least the next two years as the Company continues to expand its product
development, clinical trials, and marketing efforts.
FLUCTUATIONS IN OPERATING RESULTS. The Company's results of operations may
fluctuate significantly from quarter to quarter and will depend upon numerous
factors, including product development efforts, actions relating to regulatory
and reimbursement matters, progress of clinical trials, the extent to which the
Company's products gain market acceptance, and competition.
DEPENDENCE ON BETA CATH SYSTEM. The Company anticipates that for the foreseeable
future it will be solely dependent on the successful development and
commercialization of the Beta-Cath System. The Beta-Cath System will require
further development, as well as regulatory clearance or approval, before it can
be marketed in the United States or internationally. There can be no assurance
that the Company's development efforts will be successful or that the Beta-Cath
System will be shown to be safe or effective, cleared or approved by regulatory
authorities, capable of being manufactured in commercial quantities at
acceptable costs, approved by payors for reimbursement or successfully marketed.
In addition, there can be no assurance that demand for the Beta-Cath System will
be sufficient to allow profitable operations. Failure of the Beta-Cath System to
be successfully commercialized would have a material adverse effect on the
Company's business, financial condition and results of operations.
LIMITED SALES AND MARKETING EXPERIENCE. At present the Company has no sales and
a limited marketing and sales capability. The Company intends to sell its
products in the United States directly and outside the United States through
international distributors and corporate partners. There can be no assurance
that the Company will be able to recruit and train adequate sales and marketing
personnel to successfully commercialize the Beta-Cath System in the United
States. The inability to recruit or retain suitable international distributors
or corporate partners could also have a material adverse effect on the Company's
business, financial condition and results of operations. The Company intends to
select one or more established market leaders in the radiation isotope business
to inventory and deliver the radiation sources and provide related training,
testing and support services to hospitals in both the United States and
international markets. The inability to recruit or retain one or more such
entities for this purpose could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISK OF INADEQUATE FUNDING. The Company anticipates that its operating losses
will continue through at least 1998 because it plans to expend substantial
resources in funding clinical trials in support of regulatory approvals, and
continues to expand research and development and marketing activities. Novoste
believes that current cash balances and short-term investments, together with
interest thereon, will be sufficient to meet the Company's operating and capital
requirements through calendar 1997. However, the Company's future liquidity and
capital requirements will depend upon numerous factors, including the progress
of the Company's clinical research and product development programs; the receipt
of and the time required to obtain regulatory clearances and approvals; the
resources required to gain approvals; the resources the Company devotes to the
development, manufacture, and marketing of its products; the resources required
to hire and develop a direct sales force in the United States, develop
distributors internationally, and to expand manufacturing capacity; facilities
requirements; market acceptance and demand for its products; and other factors.
Novoste may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. There can be
no assurance that additional financing, if required, will be available on
satisfactory terms, or at all.
DEPENDENCE UPON KEY PERSONNEL. The Company is dependent upon a number of key
management and technical personnel. The loss of the services of one or more key
employees could have a material adverse effect on the Company. The Company's
success will also depend on its ability to attract and retain additional highly
qualified management and technical personnel. The Company faces intense
competition for qualified personnel, many of whom are often subject to competing
employment offers, and there can be no assurance that the Company will be able
to attract and retain such personnel. Furthermore, the Company relies on the
services of several medical and scientific consultants, all of whom are employed
21
<PAGE>
on a full-time basis by hospitals or academic or research institutions. Such
consultants are therefore not available to devote their full time or attention
to the Company's affairs.
POSSIBLE VOLATILITY OF STOCK PRICE. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In
addition, the market price of the shares of Common Stock is likely to be highly
volatile. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, FDA and international regulatory actions, actions with respect to
reimbursement matters, developments with respect to patents or proprietary
rights, public concern as to the safety of products developed by the Company or
others, changes in health care policy in the United States and internationally,
changes in stock market analyst recommendations regarding the Company, other
medical device companies or the medical device industry generally and general
market conditions may have a significant effect on the market price of the
Common Stock.
Item 2. PROPERTIES
The Company leases approximately 25,600 square feet of office and laboratory
space in an office park in Norcross, Georgia under a five-year lease expiring in
2000. All of the Company's operations (other than clinical research activities
and services of its consultants) are conducted in that facility. The Company
believes that its facility is adequate to serve its needs through at least 1998,
but additional facilities may be needed thereafter to commercialize the
Beta-Cath System.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National Market (Nasdaq
symbol: NOVT). The number of record holders of the Company's Common Stock at
February 28, 1997 was 137, excluding beneficial owners of shares registered in
nominee or street name. The Company has not paid any dividends since its
inception, other than the distribution of the Shareholder Right described in
Note 6 of the Notes to the Financial Statements, and does not intend to pay any
dividends in the foreseeable future.
The range of high and low closing sale prices for the Common Stock is as
follows:
Quarter Ended High Low
- -------------------------------- ------------------ ------------------
June 30, 1996 (from May 23, 1996) $ 15.50 $ 8.75
September 30, 1996 $ 13.75 $ 7.00
December 31, 1996 $ 16.75 $11.875
On February 28, 1997, the last reported sale price for the Common Stock was
$16.25.
22
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected statement of operations and balance
sheet data for the fiscal years ended December 31, 1996, 1995, 1994, and 1993,
and for the period from inception (May 22, 1992) through December 31, 1992 and
for the period from inception through December 31, 1996. The selected financial
data for each such fiscal year listed below has been derived from the financial
statements of the Company for those years, which have been audited by Ernst &
Young LLP, independent auditors, whose report on the Company's financial
statements as of December 31, 1996 and 1995, for each of the three years in the
period ended December 31, 1996 and for the period from inception (May 22, 1992)
through December 31, 1996 is included elsewhere herein. Certain prior years'
expense amounts have been reclassed in the Statement of Operations for 1995,
1994, 1993, for the period from inception through December 31, 1992 and for the
period from inception through December 31, 1996. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Financial Statements and
related Notes and other financial information included herein.
<TABLE>
<CAPTION>
Period from Period from
inception inception
(May 22, 1992) (May 22, 1992)
Year Ended December 31, through through
-------------------------------------------- December 31, December 31,
1996 1995 1994 1993 1992 1996
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues $ -- $ 17 $ 72 $ -- $ 200 291
Costs and expenses:
Research and
development 4,647 2,089 1,404 545 202 8,887
General and
administrative 1,575 466 526 785 735 4,088
Marketing 581 659 291 -- -- 1,532
-------------------------------------------- --------------------------
Loss from
operations (6,803) (3,197) (2,149) (1,330) (737) (14,216)
Net interest income
(expense) 864 (21) (47) 5 9 810
-------------------------------------------- --------------------------
Net loss $ (5,939) $ (3,218) $ (2,196) $ (1,325) $ (728) $(13,406)
Net loss per ============================================ ===========================
share (1) $ (0.88) $ (0.69) $ (0.54) $ (0.38) $ (0.24)
Shares used to ============================================ ==========
compute net loss
per share (1) 6,748 4,671 4,031 3,443 3,030
</TABLE>
(1) See Note 1 of the Notes to the Financial Statements for an explanation of
the method used to determine the number of shares to compute net loss per share.
23
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ 26,849 $ (906) $ (1,267) $ (149) $ 455
Total assets 29,255 2,057 982 1,583 1,157
Total liabilities 821 1,739 1,396 976 306
Deficit accumulated during development stage (13,406) (7,467) (4,249) (2,053) (728)
Total shareholders' equity (deficit) 28,434 318 (413) 608 851
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many uncertainties and risks which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties and risks include, but are not limited to, whether the Beta-Cath
System, the Company's primary product in development, will prove safe and
effective; whether and when the Company will obtain approval of the Beta-Cath
System from the United States Food and Drug Administration (FDA) and
corresponding foreign agencies; the Company's need to achieve manufacturing
scale-up in a timely manner, and its need to provide for the efficient
manufacturing of sufficient quantities of its products; the Company's dependence
on the Beta-Cath System as the primary source of future revenue; the lack of an
alternative source of supply for the radiation source materials used in the
Beta-Cath System; the Company's patent and intellectual property position; the
Company's need to develop the marketing, distribution, customer service and
technical support and other functions critical to the success of the Company's
business plan; the effectiveness and ultimate market acceptance of the Beta-Cath
System; limitations on third party reimbursement; and competition between rival
developers of restenosis reduction products. Additional risk factors include
those discussed in the section entitled "Item 1 - Business" as well as those
that may be set forth in reports filed by the Company from time to time on Forms
10-Q and 8-K. The Company does not undertake any obligation to update any
forward-looking statements.
Overview
Novoste, incorporated in January 1987, was first capitalized and commenced
operations in May 1992. To date the Company has been engaged primarily in
research and development efforts and clinical trials in interventional
cardiology, electrophysiology and critical care products. Commencing in 1994 the
Company has devoted its efforts to developing the Beta-Cath System, an
intraluminal beta radiation catheter delivery system designed to reduce the
frequency of restenosis subsequent to percutaneous transluminal coronary
angioplasty ("PTCA"). The Beta-Cath System applies localized beta radiation to
the site of the vascular injury caused by a PTCA procedure and is designed to
inhibit long-term cell proliferation ("hyperplasia") and vascular remodeling,
each primary causes of restenosis. The Beta-Cath System was developed at Emory
University Hospital in collaboration with certain physicians, including its
Director of Interventional Cardiology, Dr. Spencer B. King, III.
24
<PAGE>
The research, manufacture, sale and distribution of medical devices such as the
Company's Beta-Cath System are subject to numerous regulations imposed by
governmental authorities, principally the U.S. Food and Drug Administration
("FDA") and corresponding state and foreign agencies. The regulatory process is
lengthy, expensive and uncertain. FDA approval of a Pre Market Approval ("PMA")
application is required before any Beta-Cath System can be marketed in the
United States. Securing FDA approvals will require submission to the FDA of
extensive clinical data and technical information. The Company is conducting
Phase I human clinical trials at Emory and Rhode Island Hospital under an
Investigational Device Exemption ("IDE") granted by the FDA to determine the
clinical safety of the Beta-Cath System for use in coronary arteries. Patient
enrollment for the clinical trial at Emory was completed on July 31, 1996 and
the enrollment at Rhode Island was completed on October 25, 1996. The six-month
follow-up has not been completed on all patients. The Company anticipates
commencing human clinical safety studies at a single site in Canada and The
Netherlands by the end of April 1997.
For the period since its capitalization to December 31, 1996 the Company has
earned minimal non-recurring revenues from the sale of patent and option rights
and license and contract fees and experienced significant losses in each period.
At December 31, 1996 the Company had an accumulated deficit of approximately
$13.4 million. Further, Novoste expects to continue to incur significant
operating losses through at least 1998 and expects cumulative losses to increase
significantly as the Company continues to initiate new research and development
projects, conduct its clinical trials in the United States, Canada and Europe,
seek regulatory approval or clearance for its products, expand its sales and
marketing efforts in contemplation of product introduction and market
development and increase its administrative activities to support growth of the
Company.
There can be no assurance that the Company's research and development efforts
will be successfully completed. Additionally, as clinical testing has only
recently commenced, there can be no assurance that the Beta-Cath System will be
safe and effective. There can be no assurance that the Beta-Cath System will be
approved by the FDA or any foreign government agency or that the Beta-Cath
System or any other product developed by Novoste will be successfully introduced
or attain any significant level of market acceptance. There can be no assurance
that the Company will ever achieve either significant revenues from sales of its
Beta-Cath System or ever achieve or sustain profitability.
Results of Operations
FISCAL YEARS ENDED DECEMBER 31, 1996 AND 1995
Net loss for the year ended December 31, 1996 was $5,939,000, or ($0.88) per
share, as compared to $3,218,000, or ($0.69) per share, for the year ended
December 31, 1995. The increase in net loss in the year ended December 31, 1996
compared to the year earlier is due to increased spending for research and
development and general and administrative expenses related to the Company's
development of its Beta-Cath System, offset by increased interest income earned
from the investment of the net proceeds of the initial public offering in May
1996.
Revenues. No revenues were earned in the year ended December 31, 1996 as
compared to $16,507 of miscellaneous sales in the year ended December
31, 1995.
Research and Development Expense. Research and development expenses increased
122% to $4,647,000 for the year ended December 31, 1996 from $2,089,000 for the
year ended December 31, 1995. These increases were primarily a result of
continued product development and the Company's Phase I clinical trials of the
Beta-Cath System, which were initiated in 1996. The Company expects research and
development expenses to continue to increase in the future as the Company
initiates Phase II clinical trials of its Beta-Cath System both in the U.S. and
selected foreign countries.
25
<PAGE>
General and Administrative Expense. General and administrative expenses
increased 238% to $1,575,000 for the year ended December 31, 1996 from $466,000
for the year ended December 31, 1995. These increases were primarily a result of
increased personnel, higher salaries, accrued severance and increased costs
associated with being a public company such as director and officers liability
insurance. The Company expects general and administrative expenses to increase
in the future in support of a higher level of operations and to support
obligations associated with being a public company.
Marketing Expense. Marketing expenses decreased 12% to $581,000 for the year
ended December 31, 1996 from $659,000 for the year ended December 31, 1995 due
to a start-up bonus and relocation allowance paid in 1995 to a new management
employee. The Company expects sales and marketing expenses to increase in the
future in support of a direct sales force in the United States and international
distributors to market the product.
Interest Income and Expense. Net interest income was $863,000 for the year ended
December 31, 1996 whereas net interest expense of $21,000 was incurred during
the year ended December 31, 1995. The increase in interest income were primarily
due to investing the proceeds of the Company's initial public offering in cash
equivalents and short-term investments.
FISCAL YEARS ENDED DECEMBER 31, 1995 AND 1994
Net loss for the year ended December 31, 1995 was $3,218,000, or ($0.69) per
share, as compared to $2,196,000, or ($0.54) per share, for the year ended
December 31, 1994. The increase in net loss in the year ended December 31, 1995
compared to the year earlier is due to increased spending for research and
development and general and administrative expenses related to the Company's
development of its Beta-Cath System.
Revenues. Revenues decreased to $17,000 in 1995 from $72,000 in 1994 as the
Company did not receive any contract or license fee revenue in 1995.
Research and Development Expense. Research and development expenses increased
49% to $2,089,000 for the year ended December 31, 1995 from $1,404,000 for the
year ended December 31, 1994. This increase in expenses was due to the hiring of
additional personnel, an increase in outside consulting and services
attributable to the development of the Beta-Cath System, and the support of
pre-clinical studies.
General and Administrative Expense. General and administrative expenses
decreased 11% to $466,000 for the year ended December 31, 1995 from $526,000 for
the year ended December 31, 1994. There were no significant changes in any one
expense category.
Marketing Expense. Marketing expenses increased 126% to $659,000 for the year
ended December 31, 1995 from $291,000 for the year ended December 31, 1994 due
to additions to the Company's management to support increased marketing efforts.
Interest Income and Expense. Net interest expense decreased 54% to $21,000 for
the year ended December 31, 1995 from $46,000 for the year ended December 31,
1994. This was due to increased interest income during the year ended December
31, 1995 from amounts invested in money market accounts and certain government
securities arising from additional equity financing.
Liquidity and Capital Resources
The Company financed its activities since inception up to May 29, 1996, the date
of the Company's initial public offering, through private placements of its
Common Stock, Class B Common Stock and promissory notes. Since inception through
December 31, 1996, the Company obtained funds aggregating approximately $38.1
million in net proceeds from the issuance of Common Stock and Class B Common
26
<PAGE>
Stock (including approximately $30.6 million in net proceeds from its initial
public offering which closed in May 1996), and approximately $1.8 million in net
proceeds from the issuance of convertible promissory notes.
During the year ended December 31, 1996 and 1995, the Company used cash to fund
operations of $4.8 million and $2.7 million, respectively. Cash used to fund
operations since inception was approximately $10.5 million. The increases in
cash used in operations were due primarily to higher expenses associated with
increased research and development activities, initiation of marketing and sales
activities and increased general and administrative expenses to support
increased operations. The Company's expenditures for equipment and improvements
have aggregated $1.8 million since inception. Future cash needs for operating
activities are anticipated to be higher than historical levels because of the
development, manufacturing scale-up and commercialization of the Beta-Cath
System, subject to the factors discussed above.
The Company's principal source of liquidity at December 31, 1996 consisted of
cash, cash equivalents and short-term investments of $27.5 million. The Company
did not have any credit lines available or outstanding borrowings at December
31, 1996. On June 27, 1996 the Company signed an agreement with a medical
diagnostic engineering, development, and design company to provide products and
services to be used in the Company's product development. The agreement provides
for aggregate payments of $1.3 million through April 30, 1997 of which $277,000
was paid in 1996. This commitment will be funded through existing cash balances.
The Company anticipates that its operating losses will continue through at least
1998 because it plans to expend substantial resources in funding clinical trials
in support of regulatory approvals, and continues to expand research and
development and marketing activities. Novoste believes that current cash
balances and short-term investments, together with interest thereon, will be
sufficient to meet the Company's operating and capital requirements through
calendar 1997. However, the Company's future liquidity and capital requirements
will depend upon numerous factors, including the progress of the Company's
clinical research and product development programs; the receipt of and the time
required to obtain regulatory clearances and approvals; the resources required
to gain approvals; the resources the Company devotes to the development,
manufacture and marketing of its products; the resources required to hire and
develop a direct sales force in the United States, develop distributors
internationally, and to expand manufacturing capacity; facilities requirements;
market acceptance and demand for its products; and other factors. Novoste may in
the future seek to raise additional funds through bank facilities, debt or
equity offerings or other sources of capital. There can be no assurance that
additional financing, if required, will be available on satisfactory terms, or
at all.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, with the report of the independent auditors, listed in
Item 14, are included in this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING FINANCIAL DISCLOSURE
Not applicable.
27
<PAGE>
PART III
Certain information required by Part III is omitted from this Report on Form
10-K in that the Registrant will file a definitive proxy statement within 120
days after the end of its fiscal year pursuant to Regulation 14A with respect to
the 1997 Annual Meeting of Stockholders (the "Proxy Statement") to be held on
June 20, 1997 and certain information included therein is incorporated herein by
reference.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item relating to directors is incorporated by
reference in the information under the caption Election of Directors in the
Proxy Statement. See also Item 1 - Business - "Executive Officers of the
Company."
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information under the caption Executive Compensation in the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information under the caption Security Ownership of Certain Beneficial Owners
and Management in the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item in incorporated by reference to the
information under the caption Certain Relationships and Related Transactions in
the Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements of the Company and Report of Ernst &
Young LLP, Independent Auditors are included in this report:
Report of Independent Auditors
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the Years Ended December 31, 1996, 1995, and
1994 and from Inception (May 22, 1992) through December 31, 1996
Statements of Stockholders' Equity from Inception (May 22, 1992) through
December 31, 1996
Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and
1994 and from Inception (May 22, 1992) through December 31, 1996
Notes to Consolidated Financial Statements
28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Novoste Corporation
We have audited the accompanying balance sheets of Novoste Corporation (a
Development Stage Company) (the "Company") as of December 31, 1996 and 1995, and
the related statements of operations, shareholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1996 and for
the period from inception (May 22, 1992) through December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 and for the period from
inception (May 22, 1992) through December 31, 1996 in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
February 1, 1997
29
<PAGE>
NOVOSTE CORPORATION
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 19,954,827 $ 817,587
Short-term investments 7,588,693 --
Prepaid expenses 126,349 14,628
------------ ------------
Total current assets 27,669,869 832,215
Property and equipment, net 1,128,031 932,681
License agreements, net 153,396 166,934
Other assets 303,642 125,388
------------ ------------
$ 29,254,938 $ 2,057,218
============ ============
Liabilities and stockholders' equity
Current liabilities:
Fixed rate convertible promissory notes
with related parties $ -- $ 1,038,450
Accounts payable 155,946 217,543
Accrued expenses and taxes withheld 665,175 482,584
------------ ------------
Total current liabilities 821,121 1,738,577
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized at December 31, 1996, no
shares issued and outstanding; none authorized
at December 31, 1995
Common stock, $.01 par value, 25,000,000 and
14,000,000 shares authorized at
December 31, 1996 and 1995, respectively;
8,257,967 and 2,482,622 shares issued 82,580 24,826
Class B common stock, $.01 par value, none
authorized and outstanding at December 31, 1996
and 6,000,000 shares authorized, 1,611,269 shares
issued and outstanding at December 31, 1995 -- 16,113
Additional paid-in capital 41,772,791 7,760,175
Deficit accumulated during the development stage (13,405,714) (7,466,633)
------------ ------------
28,449,657 334,481
Less treasury stock, 5,280 shares of common stock, at cost (15,840) (15,840)
------------ ------------
Total stockholders' equity 28,433,817 318,641
------------ ------------
$ 29,254,938 $ 2,057,218
============ ============
</TABLE>
See accompanying notes
30
<PAGE>
NOVOSTE CORPORATION
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
From inception
(May 22, 1992)
through
Year ended December 31, December 31,
1996 1995 1994 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Miscellaneous sales $ -- $ 16,507 $ 71,777 $ 290,887
Operating expenses:
Research and development 4,646,583 2,088,822 1,404,429 8,887,032
General and administrative 1,574,678 465,670 525,656 4,087,541
Marketing 581,280 659,361 291,470 1,532,111
------------------------------------------------------------
6,802,541 3,213,853 2,221,555 14,506,684
------------------------------------------------------------
Loss from operations (6,802,541) (3,197,346) (2,149,778) (14,215,797)
Interest income 950,791 15,427 768 991,842
Interest expense (87,331) (36,107) (46,679) (181,759)
------------------------------------------------------------
Net loss $(5,939,081) $(3,218,026) $ (2,195,689) $(13,405,714)
------------------------------------------------------------
Net loss per share $ (0.88) $ (0.69) $ (0.54)
=============================================
Weighted average shares outstanding 6,748,492 4,671,147 4,031,307
=============================================
See accompanying notes.
</TABLE>
31
<PAGE>
NOVOSTE CORPORATION
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the period from inception (May 22, 1992) through December 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Class B Additional During the
Common Stock Common Stock Paid-in Development Treasury
Shares Amount Shares Amount Capital Stage Stock Total
--------- -------- --------- ------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange of stock for license
agreement at $.25 per share ....... 746,894 $ 7,469 -- $ -- $ 179,255 $ -- $ -- $ 186,724
Sale of stock at $1.00 per share .... 820,000 8,200 -- -- 811,800 -- -- 820,000
Sale of stock at $3.00 per share .... 86,667 867 -- -- 259,133 -- -- 260,000
Exercise of stock options at
$.25 per share .................... 205,000 2,050 -- -- 49,200 -- -- 51,250
Issuance of stock for consulting
services, 117,500 shares at $.25
per share, 88,500 shares at $1.00
per share and 37,585 shares at
$3.00 per share ................... 243,585 2,435 -- -- 228,195 -- -- 230,630
Issuance of stock to employees
for settlement of obligation for
consulting services, at $3.00
per share ......................... 10,000 100 -- -- 29,900 -- -- 30,000
Net loss ............................ -- -- -- -- -- (727,688) -- (727,688)
--------- -------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1992 ........ 2,112,146 21,121 -- -- 1,557,483 (727,688) -- 850,916
Sale of stock at $3.20 per
share, net of $138,932 of offering
costs.............................. 331,250 3,312 -- -- 917,756 -- -- 921,068
Exercise of stock options at
$.25 to $1.00 per share ........... 67,875 679 -- -- 23,790 -- -- 24,469
Issuance of stock for consulting
services, at $3.00 per share ...... 50,862 509 -- -- 152,077 -- -- 152,586
Repurchase of stock at $3.00 per
share ............................. (5,280) -- -- -- -- -- (15,840) (15,840)
Net loss ............................ -- -- -- -- -- (1,325,230) -- (1,325,230)
--------- -------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1993 ........ 2,556,853 25,621 -- -- 2,651,106 (2,052,918) (15,840) 607,969
Sale of stock at $3.20 per share .... 312,500 3,125 -- -- 996,875 -- -- 1,000,000
Exercise of stock options at
$.25 to $1.00 per share ........... 35,500 355 -- -- 12,270 -- -- 12,625
Issuance of stock for consulting
services, at $3.20 per share ...... 50,626 506 -- -- 161,494 -- -- 162,000
Net loss ............................ -- -- -- -- -- (2,195,689) -- (2,195,689)
--------- -------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1994 ........ 2,955,479 29,607 -- -- 3,821,745 (4,248,607) (15,840) (413,095)
Sale of stock at $3.75 per
share, net of $191,274 of offering
costs.............................. -- -- 986,269 9,863 3,497,372 -- -- 3,507,235
Exercise of stock options at
$.25 per share .................... 9,300 93 -- -- 2,232 -- -- 2,325
Issuance of stock for consulting
services, at $3.20 per share ...... 27,813 278 -- -- 88,724 -- -- 89,002
Issuance of stock for compensation
to an employee, at $3.20 per share. 16,000 160 -- -- 51,040 -- -- 51,200
Conversion of debt to common ........ 93,750 938 -- -- 299,062 -- -- 300,000
Exchange of common for Class B
common ............................ (625,000) (6,250) 625,000 6,250 -- -- -- --
Net loss ............................ -- -- -- -- -- (3,218,026) -- (3,218,026)
--------- -------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1995 ........ 2,477,342 $ 24,826 1,611,269 $16,113 $7,760,175 $(7,466,633) $(15,840) $ 318,641
--------- -------- --------- ------- ---------- ----------- -------- -----------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Class B Additional During the
Common Stock Common Stock Paid-in Development Treasury
Shares Amount Shares Amount Capital Stage Stock Total
--------- ------- --------- --------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ... 2,477,342 $24,826 1,611,269 $ 16,113 $ 7,760,175 $ (7,466,633) $ (15,840) $ 318,641
Issuance of stock for consulting
services 2,422 shares at $6.00
per share, 33,520 shares at
$6.38 per share, 678 shares
at $9.50 per share, and 435
shares at $9.375 per share ... 37,066 371 -- -- 407,667 -- -- 408,038
Issuance of stock for deferred
compensation to employees at
$3.20 per share ............ 102,945 1,029 -- -- 328,395 -- -- 329,424
Conversion of debt to common
stock ...................... 497,349 4,974 -- -- 1,860,109 -- -- 1,865,083
Exchange of Class B for
common stock ............... 1,611,269 16,113 (1,611,269) (16,113) -- -- -- --
Exercise of stock warrants at
$4.00 to $4.50 per share ..... 62,104 621 -- -- 267,597 -- -- 268,218
Cashless exercise of warrants .. 889,912 8,899 -- -- (8,899) -- -- --
Issuance of stock in initial
public offering at $14.00 per
share, net of issuance costs of
$2,973,746 ................... 2,400,000 24,000 -- -- 30,602,254 -- -- 30,626,254
Exercise of stock options at
$3.00 to $3.20 per share ..... 174,700 1,747 -- -- 555,493 -- -- 557,240
Net loss ....................... -- -- -- -- -- (5,939,081) -- (5,939,081)
--------- ------- --------- --------- ----------- ------------ ----------- ------------
Balance at December 31, 1996 ... 8,252,687 $82,580 -- $ -- $41,772,791 $(13,405,714) $ (15,840) $ 28,433,817
=================================================================================================
</TABLE>
See accompanying notes
33
<PAGE>
NOVOSTE CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From inception
(May 22, 1992)
through
Year ended December 31, December 31,
1996 1995 1994 1996
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(5,939,081) $(3,218,026) $(2,195,689) $(13,405,714)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 316,082 227,373 204,373 877,875
Issuance of stock for services or compensation 408,038 140,202 162,000 947,318
Change in assets and liabilities:
Prepaid expenses and other (111,721) 34,041 (18,866) (133,808)
Accounts payable (61,597) 95,386 48,249 155,946
Accrued expenses and taxes withheld 577,098 59,230 33,677 1,059,682
------------------------------------------------------------------------
Net cash used by operations (4,811,181) (2,661,794) (1,766,256) (10,498,701)
------------------------------------------------------------------------
Cash flows from investing activities
(Purchase) sale of short-term investments (7,588,693) - 194,280 (7,588,693)
Purchase of property and equipment, net (449,730) (484,346) (510,939) (1,752,426)
Other (226,418) (113,779) - (356,037)
------------------------------------------------------------------------
Net cash used by investing activities (8,264,841) (598,125) (316,659) (9,697,156)
------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issuance of notes payable 2,561,700 1,358,450 550,000 4,770,150
Repayment of notes payable (1,800,150) (870,000) - (2,970,150)
Proceeds from issuance of common stock 31,183,494 3,509,560 1,012,625 38,082,466
Exercise of warrants 268,218 268,218
------------------------------------------------------------------------
Net cash provided by financing activities 32,213,262 3,998,010 1,562,625 40,150,684
------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 19,137,240 738,091 (520,290) 19,954,827
Cash and cash equivalents at beginning of period 817,587 79,496 599,786 -
------------------------------------------------------------------------
Cash and cash equivalents at end of period $19,954,827 $ 817,587 $ 79,496 $19,954,827
========================================================================
Supplemental disclosures of cash flow
information
Cash paid for interest $ 101,312 $ 38,741 $ 25,084 $ 165,137
========================================================================
Conversion of fixed rate promissory notes to
related parties and accrued interest to common
stock $1,865,083 $1,865,083
================== =================
Conversion of deferred compensation to
common stock $ 329,424 $ 329,424
================== ==================
See accompanying notes.
</TABLE>
34
<PAGE>
NOVOSTE CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Organization and Basis of Presentation
Novoste Corporation (the "Company") was incorporated on January 8, 1987 and
remained dormant until May 22, 1992 (date of inception) at which time it was
capitalized. The Company is a development stage enterprise that is engaged in
developing the Beta-Cath System, an intraluminal beta radiation catheter
delivery system designed to reduce restenosis subsequent to percutaneous
transluminal coronary angioplasty.
The majority of the Company's efforts to date have been in the organization of
the Company, establishing its management team, raising capital and initiating
product development. The Company's initial public offering became effective on
May 23, 1996 and closed on May 29, 1996 with the issuance of 2,400,000 shares of
Common Stock and net proceeds (after underwriting discounts) of $31,248,000
before related expenses of approximately $622,000. All revenues received to date
have been from the sale of certain patent rights, option payments made by a
potential strategic partner to the Company in exchange for the sole right for
the potential partner to enter into future agreements with the Company, and
contract fees. Substantially all of the Company's products are in various stages
of development. To achieve profitable operations, the Company must successfully
complete the development and clinical trials of its products, obtain required
regulatory approvals and achieve market acceptance. There can be no assurance
that these efforts will be successful.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Net Loss Per Share
The net loss per share is computed based on the weighted average number of
common shares outstanding after giving effect to certain adjustments described
below. Common equivalent shares are not included in the per share calculations
where the effect of their inclusion would be antidilutive, except that, in
accordance with Securities and Exchange Commission requirements, common and
common stock equivalent shares issued during the twelve-month period preceding
the initial public offering in May 1996 have been included in the calculation
through March 31, 1996 as if they were outstanding for all periods, using the
treasury stock method and the actual initial public offering price of $14.00 per
share.
35
<PAGE>
Historical net loss per share information presented in accordance with
generally accepted accounting principles is as follows:
Years ended December 31
1996 1995 1994
---------------------------------------------------
Net loss per share $ (0.91) $ (0.87) $ (0.77)
===================================================
Shares used in computing
historical net loss per share 6,543,129 3,679,361 2,836,896
===================================================
Cash and Short-Term Investments
Cash equivalents are comprised of certain highly liquid investments with
maturities of less than three months. In addition to cash equivalents, the
Company has investments in commercial paper that are classified as short-term
(mature in more than 90 days but less than one year). Such investments are
classified as held-to-maturity, as the Company has the ability and intent to
hold them until maturity. Investments held-to-maturity are carried at amortized
cost, adjusted for the amortization or accretion of premiums or discounts
without recognition of gains or losses that are deemed to be temporary. Premiums
and discounts are amortized or accreted over the life of the related instruments
as an adjustment to yield using the straight-line method, which approximates the
effective interest method. Interest income is recognized when earned. Fair value
approximates carrying value for all cash equivalents and investments.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method based on the estimated useful lives of the related assets
ranging from 5 to 7 years. Leasehold improvements are amortized over the
remaining term of the related lease using the straight-line method. Repairs and
maintenance are expensed as incurred.
Property and equipment is comprised of the following:
1996 1995
-----------------------------------
Furniture and fixtures $ 303,958 $ 232,112
Office equipment 356,269 220,851
Laboratory equipment 134,735 98,001
Leasehold improvements 454,016 334,162
Production equipment 482,334 412,382
-----------------------------------
1,731,312 1,297,508
Less: Accumulated depreciation
and amortization (603,281) (364,827)
-----------------------------------
$ 1,128,031 $ 932,681
===================================
36
<PAGE>
Other Assets
License agreements are amortized on a straight-line basis over periods ranging
from fifteen to twenty years. The amortization periods are based on the lives of
the license agreements or the approximate remaining lives of the related
patents, whichever is appropriate. Accumulated amortization on license
agreements at December 31, 1996 and 1995 totaled $65,368 and $43,569,
respectively.
At December 31, 1996 other assets includes $90,000 paid to a German supplier for
an option, exercisable through August 25, 2002, to purchase certain assets of
the vendor for $5,000,000. Other assets also include $130,720 advanced to the
same vendor. For additional discussion of these amounts see Note 3 "Commitments
and Concentrations".
Research and Development
All research and development costs are charged to operations as incurred.
Patent Costs
Legal fees and other direct costs incurred in obtaining and protecting patents
are expensed as incurred.
Stock Based Compensation
The Company grants stock options generally for a fixed number of shares to
employees, directors, consultants and independent contractors with an exercise
price equal to the fair value of the shares at the date of grant. The Company
has elected to follow Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25") and related Interpretations in accounting
for its employee stock options. Under APB 25, no compensation expense is
recognized for stock option grants for which the terms are fixed. Compensation
expense is recognized for increases in the estimated fair value of common stock
for any stock options with variable terms.
In October 1995 the FASB issued Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("Statement 123"), which changes
the accounting for stock based compensation to non-employees and provides an
alternative to APB 25 in accounting for stock-based compensation to employees.
However, the Company elected to continue to account for stock-based compensation
to employees in accordance with APB 25 and to disclose the impact of the
alternative accounting (see Note 6).
Reclassification
Certain prior year expense amounts have been reclassified in the Statements of
Operations for 1995 and 1994 and for the period from inception through December
31, 1996 to conform with current year classifications.
2. Consulting Agreements
The Company has agreements with the members of its Scientific Advisory Board,
various consultants and others with terms ranging from one to five years.
Substantially all of these agreements provide for stock grants on the
37
<PAGE>
agreement dates with such shares valued at the fair market value on the date of
grant and include certain registration rights.
During 1996, 1995 and 1994 approximately $46,000, $21,300, and $50,000,
respectively, were charged to operations as amortization of the deferred
compensation capitalized under these agreements ($187,751 from inception through
December 31, 1996).
3. Commitments and Concentrations
Commitments
The Company is committed under operating leases for its facility and various
office equipment. Rent expense was approximately $143,192, $116,400, and $62,400
for 1996, 1995 and 1994, respectively ($416,392 from inception through December
31, 1996). The total future minimum rental payments are as follows:
1997 $174,097
1998 174,097
1999 167,692
2000 64,553
-------------
$580,439
=============
The Company has entered into a license agreement with a physician pursuant to
which he is entitled to receive a royalty on the net sales of the Beta-Cath
System (excluding consideration paid for the radioactive isotope), subject to a
maximum of $5,000,000, to be paid in exchange for the right granted thereunder
to the Company to use his name in connection with sales and marketing of the
Beta-Cath System.
On January 30, 1996 the Company entered into a license agreement whereby the
licensor assigned its claim to certain of the Company's technology back to the
Company for royalties based on net sales (as defined in the agreement) of
products derived from such technology, subject to certain minimum royalties. The
royalty agreement term is consistent with the life of the related patent and
applies to assignments of the patent technology to a third party. The royalty
agreement provides for a reduction of the royalty fees and term of the agreement
if the patent for the technology is not received within three years of execution
of the agreement.
On June 27, 1996 the Company signed an agreement with a medical diagnostic
engineering, development, and design company to provide products and services to
be used in the Company's product development. The agreement provides for
aggregate payments of $1.3 million through April 30, 1997 of which $277,000 was
paid in 1996.
On November 15, 1996 an agreement was signed under which the Company agreed to
advance a German supplier a monthly investment grant of 100,000 Deutsche Mark
(approximately $65,000) for a period of 15 months from November 1996 through
March 1998 to build and equip a production site for the exclusive production of
radioactive materials to be supplied to the Company. At December 31, 1996
advances aggregated $131,000 under this agreement. All grant advances, and the
amount paid for the option described in Note 1 are included in other assets and
will be credited toward the purchase price of the assets upon exercise of the
option. Absent the
38
<PAGE>
Company's decision to exercise the option, all amounts paid to the vendor will
be amortized over the three year remaining life of the agreement once production
of commercial volumes of radioactive materials commences.
Concentrations of Suppliers
Significant proportions of key components and processes relating to the
Company's products are purchased from single sources due to technology,
availability, price, quality, and other considerations. Key components and
processes currently obtained from single sources include isotopes, catheters,
protective tubing for catheters, proprietary connectors, and certain plastics
used in the design and manufacture of the transfer device. In the event a supply
of a key single-sourced material or component were delayed or curtailed, the
Company's ability to produce the related product in a timely manner could be
adversely affected. The Company attempts to mitigate these risks by working
closely with key suppliers regarding the Company's product needs and the
maintenance of strategic inventory levels.
4. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for income tax purposes. Significant
components of the Company's deferred tax assets for federal and state income
taxes are as follows:
December 31,
1996 1995
-----------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 5,095,822 $ 2,697,752
R&D tax credit carryforwards 219,840 127,069
Other 102,272 140,504
-----------------------------------
5,417,934 2,965,325
Valuation allowance (5,417,934) (2,965,325)
-----------------------------------
$ -- $ --
===================================
At December 31, 1996 and 1995 no deferred tax assets were recorded as their
future benefit is not assured. No income taxes were paid for 1996, 1995 or 1994.
The Company has approximately $13,375,000 of net operating losses for federal
income tax purposes available to offset future taxable income. Such losses
expire $470,000 in 2007, $1,335,000 in 2008, $2,140,000 in 2009, $3,120,000 in
2010, and $6,310,000 in 2011 and are subject to certain limitations in the event
of a change in ownership. Approximately $574,000 of the net operating loss
carryforwards will result in a credit to contributed capital when recognized.
Additionally, the Company has approximately $220,000 in research and development
tax credits which expire $24,000 in 2008, $47,000 in 2009, $56,000 in 2010, and
$93,000 in 2011 unless utilized earlier.
39
<PAGE>
5. Short-Term Debt
As of December 31, 1995 the fixed rate convertible promissory notes with related
parties bore interest at the rate of 8% and were payable to certain
shareholders, together with accrued interest, on June 1, 1996. At any time prior
to the payment of these notes, the holders had the option to convert all or any
portion of the outstanding principal balance (plus accrued interest) into Class
B common stock at the rate of $3.75 per share. The conversion price of $3.75 per
share was subject to adjustment in the event the Company issued or sold, or was
deemed to have issued or sold, any of its common stock for consideration of less
than $3.75 per share. In connection with the placement of this indebtedness, the
Company issued to a third party a warrant for the purchase of 9,395 shares of
common stock at $3.75 per share exercisable through December 31, 2000. The
carrying amounts of the promissory notes approximated their fair values at
December 31, 1995. Subsequent to December 31, 1995, the Company issued to
certain other shareholders $761,550 of additional fixed rate convertible
promissory notes with the same terms.
On May 28, 1996 fixed rate convertible promissory notes payable to related
parties in the amount of $1,800,000 plus accrued interest of $65,083 were
converted into 497,349 shares of Common Stock. On May 31, 1996 a portion of the
proceeds from the initial public offering was used to pay in full fixed rate
promissory notes to related parties totaling $1,500,150 and a note payable to a
bank in the amount of $300,000. At December 31, 1996 there are no loans or debt
outstanding.
On June 15, 1995 the Company entered into a line-of-credit arrangement for
short-term debt with a bank under which the Company could borrow up to $300,000
at the prime rate plus one percent. The line-of-credit, which expired on June
15, 1996, was subject to commitment fees of .65% of the unused line-of-credit
and borrowings thereunder were guaranteed up to $100,000 each by three
officer/directors of the Company. No borrowings were outstanding at December 31,
1995 under this line-of credit.
6. Shareholders' Equity
Recapitalization
On May 28, 1996 all of the 1,611,269 outstanding shares of Class B Common Stock
were converted on a one-for-one basis into shares of Common Stock and accrued
salaries of $320,624 were converted into 100,195 shares of Common Stock. In
addition, on May 28, 1996 the holders of warrants for 1,261,899 shares made
cashless exercises thereof to purchase an aggregate of 889,912 shares of Common
Stock (after giving effect to the conversion on a one-for-one basis of shares of
Class B Common Stock issued upon exercise of such warrants). Holders of
additional warrants exercised such warrants in full to purchase 62,104 shares of
Common Stock for $268,218 on or prior to May 28, 1996.
On May 28, 1996 the Company filed an amendment to its Articles of Incorporation
whereby the number of authorized shares of Common Stock was increased from
14,000,000 to 25,000,000, the Class B Common Stock was eliminated and 5,000,000
shares of Preferred Stock were authorized.
40
<PAGE>
Shareholder Rights Plan
On October 25, 1996 the Company's Board of Directors declared a dividend of one
Right for each share of Common Stock held of record at the close of business on
November 25, 1996. The Rights are generally not exercisable until 10 days after
an announcement by the Company that a person has acquired at least 15% of the
Company's Common Stock. Each Right, should it become exercisable, will entitle
the owner to buy 1/100th of a share of new Series A participating preferred
stock at an exercise price of $85. The Rights, which do not have any voting
rights, may be redeemed by the Company at a price of $.01 per Right at any time
prior to a person's or group's acquisition of 15% or more of the Company's
common stock.
In the event the rights become exercisable as a result of the acquisition of at
least 15% of the Company's Common Stock, each Right will entitle the owner,
other than the acquiring person, to buy at the Rights' then current exercise
price a number of shares of Common Stock with a market value equal to twice the
exercise price. In addition, unless the acquiring person owns more than 50% of
the outstanding shares of Common Stock, the Board of Directors may elect to
exchange all outstanding Rights (other than those owned by such acquiring person
or affiliates thereof) at an exchange ratio of one share of Common Stock per
Right. The Rights expire on November 25, 2006 unless they are earlier exercised,
redeemed, or exchanged. As a result of the adoption of the Shareholders' Rights
Plan, 1,000,000 shares of authorized preferred stock have been reserved and
designated as Series A Participating Preferred Stock.
Stock Option Plan
The Company's Board of Directors adopted on May 26, 1992 the Novoste Corporation
Stock Option Plan (the "Plan") under which options designated as either
incentive or non-qualified stock options may be issued to employees, officers,
directors, consultants and independent contractors of the Company or any parent,
subsidiary or affiliate of the Company. Options granted under the Plan are at
prices not less than the fair market value on the date of grant and may be
exercised for a period of ten years from the date of grant. Options granted
under the Plan have vesting periods ranging from immediately to four years. On
August 20, 1996 the Plan was amended subject to shareholder approval to include
a provision for options to accelerate and become immediately and fully
exercisable upon a 50% or more change in control as defined in the Amended and
Restated Stock Option Plan. The Company has reserved 2,500,000 shares of Common
Stock for issuance under the Plan. As of December 31, 1996 there are 248,350
shares available for issuance.
On August 20, 1996 the Stock Option and Compensation Committee of the Board of
Directors of the Company adopted a Non-Employee Director Stock Option Plan,
subject to shareholder approval. Concurrently, stock options covering 52,500
shares were granted, which vest over a three year period and exercises thereof
are contingent upon the individuals' continued service as directors. The Company
has reserved 100,000 shares of Common Stock for issuance under the Plan.
41
<PAGE>
Activity under the Plans are summarized as follows:
Number of Price Per Weighted-
Share Shares Average Price
--------- ------------ -------------
Outstanding at January 1, 1994 1,330,125 $ .25 - 3.20
Options granted 166,000 3.00 - 3.20
Options exercised (35,500) .25 - 1.00
Options canceled (16,000) 3.20
---------
Outstanding at December 31, 1994 1,444,625 .25 - 3.20
Options granted 359,750 3.20
Options exercised (9,300) .25
---------
Outstanding at December 31, 1995 1,795,075 .25 - 3.20
Options granted 209,250 8.00 -14.00 $ 10.23
Options exercised (174,700) 3.00 - 3.25 3.19
Options forfeited (17,850) 3.25 3.20
---------
Outstanding at December 31, 1996 1,811,775 $ .25 -14.00 2.29
=========
Exercisable at December 31, 1996 1,267,937 $ .25 - 3.20 $ 0.74
=========
The following table summarizes information concerning currently outstanding and
exercisable options:
Options Outstanding Options Exercisable
- ------------------------------------------------ ----------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------- ----------- ------------ --------- ----------- ---------
$ .25-$ 3.20 1,602,525 6.3 $ 1.25 1,267,937 $ .74
$ 8.00-$ 9.75 143,250 9.6 8.85 -- --
$12.25-$14.00 66,000 9.6 13.22 -- --
--------- ---------
1,811,775 6.8 $ 2.29 1,267,937 $ .74
========= =========
On May 20, 1996 the Company amended an option to purchase 100,000 shares of
Common Stock at $3.20 per share of which options for 75,000 shares had not yet
become exercisable. As amended, options to purchase such 75,000 shares become
exercisable at the annual rate of 25,000 shares beginning May 20, 1997, subject
to acceleration upon the achievement of three specified milestones at the rate
of 25,000 shares per milestone. The Company is recording total non-cash
compensation expense of $810,000 ratably over the three year period ending May
19, 1999, subject to acceleration if the specified milestones are met at earlier
dates; $168,750 was expensed in 1996 relating to these options.
Pro forma information regarding net loss and net loss per share is required by
Statement 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options granted
42
<PAGE>
subsequent to December 31, 1994 under the fair value method prescribed by that
Statement. The fair value for options granted prior to the initial public
offering was estimated at the date of grant using the Minimum Value pricing
model. The fair value for options granted subsequent to the initial public
offering was estimated at the date of grant using the Black-Scholes option
pricing model. The following weighted-average assumptions were used in the
appropriate models for 1996 and 1995: risk-free interest rates of 6.69% and
6.32%, respectively; no dividend yields; volatility factor of the expected
market price of the Company's common stock of 0.928 in 1996 (not applicable in
1995); and a weighted-average expected life of the option of 6 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1996 1995
-----------------------------------
Pro forma net loss $ (6,175,817) $ (3,317,068)
Pro forma net loss per share $ (0.92) $ (0.71)
Weighted-average fair value of
options granted $ 1.01 $ 6.97
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1999.
7. Employee Benefit Plan
Effective January 1, 1997, the Company adopted a Defined Contribution 401(k)
Plan in which all employees who are at least 21 years of age are eligible to
participate. Contributions of up to 15% of compensation to the 401(k) Plan will
be made by employees through salary withholdings. Company contributions are
discretionary.
Beta-Cath(TM) is a trademark of Novoste Corporation.
43
<PAGE>
14 (a) 2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable or not required.
14 (a) 3. EXHIBITS
See Index to Exhibits on page 46.
15. RECENT SALES OF UNREGISTERED SECURITIES
On June 28, 1996, Registrant issued 678 shares of Common Stock to Ian Crocker,
M.D., for consulting services rendered in the second quarter of 1996 valued at
$6,450 (or $9.50 per share).
On August 30, 1996, Registrant issued 435 shares of Common Stock to Ian Crocker,
M.D., for consulting services rendered in the third quarter of 1996 valued at
$4,300 (or $9.875 per share).
The foregoing transactions of Registrant were exempt from registration under the
Securities Act of 1933, as amended, under Section 4(2) thereunder, and all stock
certificates issued in connection therewith were legended to reflect their
restricted status.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 10, 1997.
NOVOSTE CORPORATION
By: s/Thomas D. Weldon
------------------
Thomas D. Weldon
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 10, 1997.
s/Norman R. Weldon Chairman of the Board and Director
- ----------------------
Norman R. Weldon, PhD.
s/Thomas D. Weldon President, Chief Executive Officer
- ---------------------- and Director
Thomas D. Weldon (Principal Executive Officer)
s/David N. Gill Vice President-Finance and Chief
- ---------------------- Financial Officer (Principal
David N. Gill Financial and Accounting Officer)
s/Charles E. Larsen Director
- ----------------------
Charles E. Larsen
s/J. Stephen Holmes Director
- ----------------------
J. Stephen Holmes
s/Richard M. Johnston Director
- ----------------------
Richard M. Johnston
s/Pieter J. Schiller Director
- ----------------------
Pieter J. Schiller
s/Jack R. Kelly, Jr. Director
- ----------------------
Jack R. Kelly, Jr.
s/William E. Whitmer Director
- ----------------------
William E. Whitmer
s/Stephen I. Shapiro Director
- ----------------------
Stephen I. Shapiro
45
<PAGE>
INDEX TO EXHIBITS
Exhibit
Numbers Description
- -------
3.1 Articles of Incorporation of Registrant, as amended.(1)
3.2 Form of Amended and Restated Articles of Incorporation of Registrant
filed on May 28, 1996.(1)
3.2(a) Copy of First Amendment to Amended and Restated Articles of
Incorporation of Novoste Corporation filed with the Department of
State of the State of Florida on November 1, 1996.(2)
3.3(a) Copy of Amended and Restated By-Laws of Registrant adopted December
20, 1996.
4.1 Form of Specimen Common Stock Certificate of Registrant.(1)
4.2 Registration Rights Agreement, dated July 28, 1995, by and among
Registrant, Norman R. Weldon, Thomas D. Weldon, Charles E. Larsen, the
Hillman Investors (as defined therein), Noro-Moseley Partners-III,
L.P. and Advanced Technology Ventures IV, L.P.(1)
4.3 Registration Rights Agreement, dated April 26, 1995, between
Registrant and ABS Employees' Venture Fund Limited Partnership.(1)
4.4 Registration Rights Agreement, dated September 20, 1995, between
Registrant and Karen C. Vinjamuri.(1)
4.5 Stock Purchase Warrant, dated September 24, 1993, between Registrant
and The Kriegsman Group.(1)
4.6 Stock Purchase Warrant, dated March 24, 1994, between Registrant and
The Kriegsman Group.(1)
4.7 Stock Purchase Warrant, dated August 1995, between Registrant and The
Kriegsman Group.(1)
4.9 Consulting Agreement, dated July 30, 1992, between Registrant and
Spencer B. King III, M.D.(1)
4.10 Consulting Agreement, dated February 1, 1996, between Registrant and
Spencer B. King III, M.D.(1)
4.11 Consulting Agreement, dated February 1, 1993, between Registrant and
Harry A. Kopelman, M.D.(1)
4.12 Consulting Agreement, dated October 4, 1992, between Registrant and
Robert Langer.(1)
4.13 Consulting Agreement, dated July 30, 1992, between Registrant and John
B. Martin.(1)
4.14 Consulting Agreement, dated November 4, 1992, between Registrant and
Raphael Meloul.(1)
4.15 Consulting Agreement, dated June 30, 1992, between Registrant and
David O. Williams, M.D.(1)
4.16 Form of Fixed Rate Promissory Notes by Registrant, in the aggregate
principal amount of $1,500,150, at the interest rate of 8.0%
compounded annually.(1)
4.17(a) Form of Rights Agreement, dated as of October 25, 1996, between
Novoste Corporation and American Stock Transfer & Trust Company, which
includes as Exhibit B thereto the Form of Right Certificate. Pursuant
to the Rights Agreement, the Right Certificates will not be mailed
until after the earlier of (i) the first date of a public announcement
that a person or group of affiliated or associated persons has
acquired, or obtained the right to acquire, beneficial ownership of
15% or more of the outstanding Common Shares, or (ii) 10 business days
following the commencement of, or announcement of an intention to
commence, a tender or exchange offer the consummation of which would
result in a person or group beneficially owning 15% or more of such
outstanding Common Shares.(2)
4.17(b) Summary of Rights to Purchase Preferred Shares of Novoste
Corporation.(2)
46
<PAGE>
*10.1 Copy of Stock Option Plan of Registrant, as amended as of February 28,
1997, subject to shareholder approval.
+10.2 License Agreement, dated January 30, 1996, between Emory University
and Registrant.(1)
+10.3 Clinical Research Study Agreement, dated January 30, 1996, by Emory
University And Registrant.(1)
+10.4 License Agreement, dated January 31, 1996, between Spencer B. King
III, M.D. and Registrant.(1)
+10.5 Restenosis Therapy Project Development and Supply Agreement, dated
November 28, 1994, with Registrant, relating to the supply of
radioactive beta isotopes.(1)
10.6 Option to Purchase Assets Agreement dated August 22, 1995, with
Registrant relating to the purchase of assets of Registrant's supplier
of radioactive beta isotopes.(1)
10.7 License/Product Supply Agreement, dated as of May 11, 1992, by and
among Sumitomo Bakelite Co., Ltd., Sumitomo Plastics America, Inc.,
Norman R. Weldon, Thomas D. Weldon, Charles E. Larsen and
Registrant.(1)
10.8 Lease, dated July 9, 1992, between Weeks Master Partnership, L.P. and
Registrant, as amended.(1)
10.9(a) Agreement, dated June 15, 1995, between NationsBank of Georgia, N.A.
and Registrant, superseding the indebtedness originally evidenced by
documents dated September 1994.(1)
10.9(b) Continuing and Unconditional Guaranty dated September 15, 1994, by
Charles Larsen.(1)
10.9(c) Continuing and Unconditional Guaranty dated September 15, 1994, by
Thomas D. Weldon.(1)
10.9(d) Continuing and Unconditional Guaranty, dated June 15, 1995, by Norman
R. Weldon.(1)
++10.10 Frame Agreement with Bebig Isotopentechnik und Umweltdiagnostik GmbH
regarding purchases and investment grant
*10.11 Agreement and Release dated November 4, 1996, between Registrant and
Jonathan J. Rosen, Ph.D.
*10.12 Copy of Non-Employee Director Stock Option Plan, subject to
shareholder approval.
11 Computation of Per Share Earnings.
23.1 Consent of Ernst & Young LLP relating to the Registrant's Registration
Statement on Form S-8 (File No. 333-12717).
27 Financial Data Schedule.
- ----------
+ Portions have been omitted and filed separately with the Securities and
Exchange Commission pursuant to an order granting confidential treatment.
++ Portions have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
(1) Filed as same numbered Exhibit to the Registrant's Registration Statement
on Form S-1 (File No. 333-4988).
(2) Filed as same numbered Exhibit to the Registrant's Registration Statement
on Form 8-A filed on November 5, 1996.
* Constitutes a compensatory plan, contract or arrangement.
47
SECOND AMENDED AND RESTATED BY-LAWS
OF
NOVOSTE CORPORATION
ARTICLE I
ARTICLES OF INCORPORATION AND PROVISIONS OF LAW
These By-Laws, the powers of the Corporation and of its directors and
shareholders and all matters concerning the conduct and regulation of the
business of the Corporation shall be subject to such provisions in regard
thereto, if any, as are provided by law or set forth in the Amended and Restated
Articles of Incorporation ("Articles of Incorporation"). All references herein
to the Articles of Incorporation shall be construed to mean the Articles of
Incorporation of the Corporation as from time to time amended.
ARTICLE II
OFFICES
SECTION 2.01. Principal Office. The principal office of the
Corporation shall be located in the City of Norcross in the State of Georgia or
such other place within or without the State of Georgia as may be determined by
the Board of Directors from time to time.
SECTION 2.02. Other Offices. The Corporation may also have an office
or offices at such other place or places either within or without the State of
Florida as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE III
MEETINGS OF SHAREHOLDERS
SECTION 3.01. Place of Meetings. All meetings of the shareholders of
the Corporation shall be held at the principal office of the Corporation or at
such other place, within or without
<PAGE>
the State of Florida, as shall be fixed by the Board of Directors and specified
in the respective notices or waivers of notice of said meetings.
SECTION 3.02. Annual Meetings. The annual meeting of the shareholders
(the "Annual Meeting") for the election of directors and for the transaction of
such other business as may come before the meeting shall be held at 10:00
o'clock in the forenoon, local time, on the first Wednesday in May of each year,
if not a legal holiday, and, if a legal holiday, then on the next succeeding
business day not a legal holiday. If the Annual Meeting is not held on the day
herein provided therefor, the Board of Directors in its discretion may fix
another date thereafter for the holding of such Annual Meeting. The purposes for
which an Annual Meeting is to be held, in addition to those prescribed by law or
these By-Laws, may be specified by a majority of the Board of Directors, the
Chairman, the President or a shareholder or shareholders holding of record at
least ten percent (10%) in voting power of the outstanding shares of the
Corporation entitled to vote at such meeting.
SECTION 3.03. Special Meetings. A special meeting of the shareholders
for any purpose or purposes, unless otherwise prescribed by statute, may be
called at any time by the President, the Chairman, by order of the Board of
Directors or by a shareholder or shareholders holding of record at least ten
percent (10%) in voting power of the outstanding shares of the Corporation
entitled to vote at such meeting. Business transacted at any special meeting of
shareholders shall be limited to the purposes stated in the notice of meeting
therefor.
SECTION 3.04. Notice of Meetings. Notice of each meeting of the
shareholders shall be given to each shareholder of record entitled to vote at
such meeting at least ten (10) days but not more than seventy (70) days before
the day on which meeting is to be held. Such notice shall be given by delivering
a written or printed notice thereof personally or by mail. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the shareholder at the post office address of such
shareholder as it appears upon the stock record books of the Corporation, or at
such other address as such shareholder shall have provided to the Corporation
for such purpose. No publication of any notice of a meeting of shareholders
shall be required. Every such notice shall state the time and place of the
meeting, and, in case of a special meeting, shall state the purpose or purposes
thereof. Notice of any meeting of shareholders shall not be required to be given
to any shareholder
2
<PAGE>
who shall attend such meeting in person or by proxy or who shall waive notice
thereof in the manner hereinafter provided. Notice of any adjourned meeting of
the shareholders shall not be required to be given.
SECTION 3.05. Quorum. At each meeting of the shareholders, a majority
of the outstanding shares of the Corporation entitled to vote, represented in
person or by proxy, shall constitute a quorum for the transaction of business.
In the absence of a quorum, a majority of the shares so represented at such
meeting, or, in the absence of all the shareholders entitled to vote, any
officer entitled to preside or to act as secretary at such meeting, may adjourn
the meeting from time to time without further notice. At any such adjourned
meeting at which a quorum shall be presented or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The absence from any meeting of shareholders holding a sufficient
number of shares required for action on any given matter shall not prevent
action at such meeting upon any other matter or matters which properly come
before the meeting, if shareholders holding a sufficient number of shares
required for action on such other matter or matters shall be present. The
shareholders present or presented at any duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 3.06. Voting. Each shareholder of the Corporation shall,
whether the voting is by one or more classes voting separately or by two or more
classes voting as one class, be entitled to one vote in person or by proxy for
each share of the Corporation registered in the name of the shareholder on the
books of the Corporation. The Corporation shall not vote directly or indirectly
any shares held in its own name. Any vote of shares may be given by the
shareholder entitled to vote such shares in person or by proxy appointed by an
instrument in writing. At all meetings of the shareholders at which a quorum is
present, all matters (except where other provision is made by law or by these
By-Laws) shall be decided by the affirmative vote of holders of a majority of
the shares present in person or represented by proxy and entitled to vote
thereat.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 4.01. General Powers. The property, affairs and business of
the Corporation shall be managed by the Board of Directors, and the Board shall
have, and may exercise, all of the
3
<PAGE>
powers of the Corporation, except such as are conferred by these By-Laws upon
the shareholders.
SECTION 4.02 Number, Classes, Vacancies and Terms of Office.
a. The number of directors of the Corporation constituting the
entire Board of Directors shall be not less than six or more than twelve. The
Board of Directors shall determine from time to time the number of directors who
shall constitute the entire Board of Directors. Any such determination made by
the Board of Directors shall continue in effect unless and until changed by the
Board of Directors, but no such changes shall affect the term of any directors
then in office. No director need be a shareholder.
b. The Board of Directors shall be divided into three classes,
Class I, Class II and Class III, the number of and class for each director to be
determined by the Board of Directors (with the number of directors in each class
being as nearly equal as possible). No class shall include less than two nor
more than four directors. Any vacancy on the Board of Directors that results
from an increase in the number of directors and any other vacancy on the Board
may be filled by the affirmative vote of a majority of the remaining directors
then in office whether or not a quorum is present, or by the affirmative vote of
the holders of a majority of the shares of capital stock present in person or
represented by proxy at a duly convened meeting of shareholders (excluding for
purposes of calculating the number of votes cast, broker non-votes and
abstentions). Any increase or decrease in the number of directors shall be so
apportioned among the classes as to make all classes as nearly equal in number
as possible. Directors elected to fill a newly created directorship or other
vacancies shall be classified and hold office as provided by statute.
c. The terms of office of the respective classes of directors
initially classified shall be as follows: (1) Class I shall expire at the Annual
Meeting of shareholders to be held in 1997; (2) Class II shall expire at the
Annual Meeting of shareholders to be held in 1998; and (3) Class III shall
expire at the Annual Meeting of shareholders to be held in 1999. At each Annual
Meeting of shareholders after the aforementioned initial classification, the
successors to directors whose terms shall then expire shall be elected to serve
from the time of election and qualification until the third Annual Meeting
following election and until a successor shall have been duly elected and shall
have qualified.
4
<PAGE>
SECTION 4.03. Election of Directors. Subject to any provisions in the
Articles of Incorporation providing for cumulative voting, at each meeting of
the shareholders for the election of directors at which a quorum is present, the
persons receiving the greatest number of votes shall be the directors, and each
shareholder entitled to vote at such election shall have a right to vote, in
person or represented by proxy, for as many nominees as the number of directors
in such class as determined by the Board of Directors and to cast for each such
nominee as many votes as the number of shares which such shareholder is entitled
to vote, without the right to cumulate such votes.
SECTION 4.04. Quorum and Manner of Acting. A majority of the total of
the number of directors at the time in office shall constitute a quorum for the
transaction of business at any meeting, and except as otherwise provided by
these By-Laws, the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum, a majority of the directors present may adjourn any meeting
from time to time without further notice until a quorum be had. The directors
shall act only as a Board, and the individual directors shall have no power as
such.
SECTION 4.05. Place of Meetings. The Board of Directors may hold its
meetings at any place within or without the State of Florida as it may from time
to time determine or shall be specified or fixed in the respective notices or
waivers or notice thereof.
SECTION 4.06. Annual Meetings. The Board of Directors shall meet for
the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual election of directors
on the same day and at the same place at which such election of directors was
held. Notice of such meeting need not be given. Such meeting may be held at any
other time or place which shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors or in a consent and
waiver of notice thereof signed by all the directors.
SECTION 4.07. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such places and at such times as the Board shall from
time to time by vote determine. If any day fixed for a regular meeting shall be
a legal holiday at the place where the meeting is to be held, then the meeting
which would otherwise be held on that day shall be held at the same hour on the
next succeeding business day not a legal holiday. Notice of regular meetings
need not be given.
5
<PAGE>
SECTION 4.08. Special Meetings; Notice. Special meetings of the Board
of Directors shall be held whenever called by the President or Chairman or by
not less than twenty-five percent (25%) of the member of the Board of Directors.
Notice of each such meeting shall be given by, or at the order of, the Secretary
or the person calling the meeting to each director by mailing the same addressed
to the director's residence or usual place of business, or personally by
delivery or by telegraph, cable or telephone, at least two (2) days before the
day on which the meeting is to be held. Every such notice shall state the time
and place of the meeting but need not state the purpose thereof except as
otherwise in these By-Laws expressly provided.
SECTION 4.09 Presumption of Assent. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
SECTION 4.10. Telephone Meetings. Meetings of the Board of Directors,
regular or special, may be held by means of a telephone conference circuit and
connection to such circuit shall constitute presence at such meeting.
SECTION 4.11. Removal of Directors. Any director may be removed,
either with or without cause, at any time, by the affirmative vote of the
holders of record of a majority of the issued and outstanding shares entitled to
vote for the election of directors of the Corporation given at a special meeting
of the shareholders called and held for the purpose.
SECTION 4.12. Resignation. Any director of the Corporation may resign
at any time by giving written notice to the Board of Directors or to the
Chairman of the Board or to the Secretary of the Corporation. The resignation of
any director shall take effect at the time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
6
<PAGE>
SECTION 4.13. Limitation of Director Liability.
a. No director shall be personally liable for monetary damages to
the Corporation or any other person for any statement, vote, decision, or
failure to act, regarding corporate management or policy, by a director, unless:
(a) the director breached or failed to perform his duties as a director; and (b)
the director's breach of, or failure to perform, those duties constitutes i) a
violation of the criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to believe his conduct
was unlawful, ii) a transaction from which the director derived an improper
personal benefit, either directly or indirectly, iii) a circumstances under
which the liability provisions of Section 607.0834 of the Florida Business
Corporation Act are applicable, iv) in a proceeding by or in the right of the
Corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the Corporation, or
willful misconduct, or v) in a proceeding by or in the right of someone other
than the Corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property.
b. For purposes of this Section 4.13, the term "recklessness"
means the action, or omission to act, in conscious disregard of a risk: (c)
known, or so obvious that it should have been known, to the director; and (d)
known to the director, or so obvious that it should have been known, to be so
great as to make it highly probable that harm would follow from such action or
omission.
ARTICLE V
COMMITTEES
SECTION 5.01. Appointment. A majority of the full Board of Directors
by resolution may designate two or more of its members to constitute an
Executive Committee and one or more other committees to serve at the pleasure of
the Board of Directors. The designation of such committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed by law.
SECTION 5.02. Authority. A committee shall have and may exercise all
of the authority of the Board of Directors except to (a) the extent, if any,
that such authority shall be limited by the resolution of the Board of Directors
constituting such committee,
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(b) approve or recommend to shareholders actions or proposals required by the
Florida Business Corporation Act to be approved by shareholders, (c) fill
vacancies on the Board of Directors or any committee thereof, (d) adopt, amend
or repeal these By-Laws, (e) authorize or approve the reacquisition of shares
unless pursuant to a general formula or method specified by the Board of
Directors, or (f) authorize or approve the issuance or sale or contract for the
sale of shares, or determine the designation and relative rights, preferences,
and limitations of a voting group of shareholders except that the Board of
Directors may authorize a committee (or a senior executive officer of the
Corporation) to do so within limits specifically prescribed by the Board of
Directors.
SECTION 5.03. Tenure and Qualifications. Each member of a committee
shall hold office until the next regular annual meeting of the Board of
Directors following designation and until a successor is designated as a member
of such committee and is elected and qualified or until the death or resignation
or removal of such member in the manner herein provided.
SECTION 5.04. Meetings. Regular meetings of a committee may be held
without notice at such times and places as such committee may fix from time to
time by resolution. Special meetings of a committee may be called by any member
thereof upon not less than two (2) days' notice stating the place, date and hour
of the meeting, which notice may be written or oral, and if mailed, shall be
deemed to be delivered when deposited in the United States mail addressed to the
member of such committee at such member's business address. Any member of a
committee may waive notice of any meeting and no notice of any meeting need be
given to any member thereof who attends in person. The notice of a meeting of a
committee need not state the business proposed to be transacted at the meeting.
A majority of the full Board of Directors by resolution may designate one or
more directors as alternate members of any such committee who may act in the
place and stead of any absent member or members at any meeting of such
committee.
SECTION 5.05. Telephone Meetings. Meetings of a committee may be held
by means of a telephone conference circuit and connection to such circuit shall
constitute attendance at such meeting.
SECTION 5.06. Quorum. A majority of the members of a committee shall
constitute a quorum for the transaction of business at any meeting thereof, and
action of a committee shall be authorized by the affirmative vote of a majority
of the members present at a meeting at which a quorum is present.
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SECTION 5.07. Vacancies. Any vacancy in a committee may be filled by a
resolution adopted by a majority of the full Board of Directors.
SECTION 5.08. Resignations and Removal. Any member of a committee may
be removed at any time with or without cause by the affirmative vote of a
majority of the directors present at any meeting at which a quorum is present.
Any member of a committee may resign from a committee at any time by giving
written notice to the Board of Directors or to the Chairman of the Board or to
the Secretary of the Corporation. The resignation of any member of a committee
shall take effect at the time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 5.09. Procedure. A committee may elect a presiding officer
from its members and may fix its own rules of procedure which shall not be
inconsistent with these By-Laws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting thereof held next after the proceedings shall have been taken.
ARTICLE VI
WAIVER OF NOTICE; WRITTEN CONSENT
SECTION 6.01. Waiver of Notice. Notice of the time, place and purpose
of any meeting of the shareholders, Board of Directors or a committee may be
waived in writing by any shareholder or director either before or after such
meeting. Attendance in person, or in case of a meeting of the shareholders, by
proxy, at a meeting of the shareholders, Board of Directors or a committee shall
be deemed to constitute a waiver of notice thereof.
SECTION 6.02. Written Consent of Directors. Unless otherwise
restricted by the Articles of Incorporation or these ByLaws, any action required
or permitted to be taken at any meeting of the Board of Directors or a committee
may be taken without a meeting if a consent in writing, setting forth the action
so to be taken, shall be signed before or after such action by all of the
directors, or all of the members of such committee, as the case may be. Such
written consent shall be filed with the records of the Corporation.
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ARTICLE VII
OFFICERS
SECTION 7.01. Number. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary,
and such other officers as the Board of Directors may from time to time appoint,
including additional Vice Presidents, one or more Assistant Secretaries, a
Treasurer and one or more Assistant Treasurers. One person may hold the offices
and perform the duties of any two or more said officers.
SECTION 7.02. Election, Qualification and Term of Office. Each officer
shall be elected annually by the Board of Directors, or from time to time to
fill any vacancy, and shall hold office until a successor shall have been duly
elected and qualified, or until the death, resignation or removal of such
officer in the manner hereinafter provided.
SECTION 7.03. Removal. Any officer may be removed by the vote of a
majority of the whole Board of Directors at a special meeting called for the
purpose, whenever in the judgement of the Board of Directors the best interest
of the Corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the officer so removed. Election or
appointment of an officer or agent shall not of itself create contract status.
SECTION 7.04. Resignation. Any officer may resign at any time by
giving written notice to the Board of Directors or to the Chairman, the
President or the Secretary. Any such resignation shall take effect at the date
of receipt of such notice or at any later time specified therein; and unless
otherwise specified therein the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 7.05. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term by the Board of Directors at any regular or
special meeting.
SECTION 7.06. Chairman of the Board. The Chairman of the Board shall
be a director and shall preside at all meetings of the Board of Directors and
shareholders. Subject to determination by the Board of Directors, the Chairman
shall have general executive powers and such specific powers and duties as from
time to time may be conferred or assigned by the Board of Directors.
SECTION 7.07. The President. The President shall be the chief
executive officer of the Corporation and shall have general direction of the
affairs of the Corporation. In addition, the President shall perform such other
duties and have such other
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responsibilities as the Board of Directors may from time to time determine. In
the absence of the Chairman of the Board, the President shall preside at all
meetings of the shareholders.
SECTION 7.08. The Vice Presidents. The Vice Presidents in the order
determined by the Board of Directors, shall in the absence or disability of the
President, perform the duties and exercise the powers of the President and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
SECTION 7.09. The Vice President/Finance. The Vice President/Finance
shall have charge and custody of, and be responsible for, all funds and
securities of the Corporation, and deposit all such funds to the credit of the
Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of these By-Laws; disburse the funds
of the Corporation under the general control of the Board of Directors, based
upon proper vouchers for such disbursements; receive, and give receipts for,
moneys due and payable to the Corporation from any source whatsoever, render a
statement of the condition of the finances of the Corporation at all regular
meetings of the Board of Directors, and a full financial report at the Annual
Meeting of shareholders, if called upon to do so; and render such further
statements to the Board of Directors, the Chairman and the President as they may
respectively require concerning all transactions as Vice President/Finance or
the financial condition of the Corporation. The Vice President/Finance shall
also have charge of the books and records of account of the Corporation, which
shall be kept at such office or offices of the Corporation as the Board of
Directors shall from time to time designate; be responsible for the keeping of
correct and adequate records of the assets, liabilities, business and
transactions of the Corporation; at all reasonable times exhibit the books and
records of account to any of the directors of the Corporation upon application
at the office of the Corporation where such books and records are kept; be
responsible for the preparation and filing of all reports and returns relating
to or based upon the books and records of the Corporation kept under the
direction of the Vice President/Finance; and, in general, perform all the duties
incident to the office of Vice President/Finance and such other duties as from
time to time may be assigned by the Board of Directors, the Chairman, or the
President.
SECTION 7.10. The Secretary. The Secretary shall record or cause to be
recorded in books provided for the purpose all the proceedings of the meetings
of the Corporation, including the shareholders, the Board of Directors and all
committees of which a
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secretary shall not have been appointed; shall see that all notices are duly
given in accordance with the provisions of these By-Laws and as required by law;
shall be custodian of the records (other than financial) and of the seal of the
Corporation; and in general, shall perform all duties incident as may, from time
to time, be assigned by the Board of Directors, the Chairman or the President.
SECTION 7.11. The Assistant Secretaries. At the request, or in the
absence or disability of the Secretary, the Assistant Secretary designated by
the Secretary or the Board of Directors shall perform all the duties of the
Secretary and, when so acting, shall have all the powers of the Secretary. The
Assistant Secretaries shall perform such other duties as may, from time to time,
be assigned by the Board of Directors, the Chairman, the President or the
Secretary.
SECTION 7.12. The Treasurer and Assistant Treasurers. At the request,
or in the absence or disability of the Vice President/Finance, the Treasurer
designated by the Vice President/Finance or the Board of Directors shall perform
all the duties of the Vice President/Finance, and when so acting, shall have all
the powers of the Vice President/Finance. The Assistant Treasurers shall perform
such other duties as may, from time to time, be assigned by the Board of
Directors, the Chairman, the President or the Vice President/Finance.
SECTION 7.13. General Powers. Each officer shall, subject to these
By-Laws, have, in addition to the duties and powers herein set forth, such
duties and powers as are commonly incident to the respective office, and such
duties and powers as the Board of Directors shall from time to time designate.
SECTION 7.14. Bonding. Any officer, employee, agent or factor shall
give such bond with such surety or sureties for the faithful performance of his
or her duties as the Board of Directors may, from time to time, require.
ARTICLE VIII
INDEMNIFICATION
a. Each person (including here and hereinafter, the heirs,
executors, administrators, or estate of such person) (a) who is or was a
director or officer of the Corporation, (b) who is or was an agent or employee
of the Corporation other than an officer and as to whom the Corporation has
agreed to grant such indemnity, or (c) who is or was serving at the request of
the Corporation as its representative in the position of a director, officer,
agent or
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employee of another corporation, partnership, joint venture, trust or other
enterprise and as to whom the Corporation has agreed to grant such indemnity,
shall be indemnified by the Corporation as of right to the fullest extent
permitted or authorized by current or future legislation or by current or future
judicial or administrative decision (but, in the case of any such future
legislation or decision, only to the extent that it permits the Corporation to
provide broader indemnification rights than permitted prior to such legislation
or decision), against any fine, liability, cost or expense, including attorneys'
fees, asserted against him or incurred by him in his capacity as such director,
officer, agent, employee, or representative, or arising out of his status as
such director, which indemnification shall not be exclusive of other rights to
which those seeking an indemnification may be entitled. The Corporation may
maintain insurance, at its expense, to protect itself and any such person
against any such fine, liability, cost or expense, whether or not the
Corporation would have the legal power to directly indemnify him against such
liability.
b. Costs, charges and expenses (including attorneys' fees)
incurred by a person referred to in a. of this Article VIII in defending a civil
or criminal suit, action or proceeding shall be paid by the Corporation in
advance of the final disposition thereof upon receipt, in the case of an officer
or director, of an undertaking to repay all amounts so advanced in the event it
shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized by this Article VIII, and upon
satisfaction of such other conditions as are required by current or future
legislation (but, with respect to future legislation, only to the extent that it
provides conditions less burdensome than those previously provided). Such costs,
charges and expenses incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the Board of Directors may deem
appropriate.
c. If this Article VIII or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each person described in a. of this
Article VIII to the fullest extent permitted by any applicable portion and to
the fullest extent permitted by law.
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ARTICLE IX
EXECUTION OF DOCUMENTS
SECTION 9.01. Contract, etc., How Executed. Unless the Board of
Directors shall otherwise determine, the (i) Chairman of the Board, President,
or any Vice President, and (ii) any other officer of the Corporation, acting
jointly, may enter into any contract or execute any contract or other
instrument, the execution of which is not otherwise specifically provided for,
in the name and on behalf of the Corporation. The Board of Directors, except as
in these By-Laws otherwise provided, may authorize any other or additional
officer or officers, agent or agents, of the Corporation to enter into any
contract or execute and deliver any contract or other instrument in the name and
on behalf of the Corporation, and such authority may be general or confined to
specific instances. Unless authorized so to do by these By-Laws or by the Board
of Directors, no officer, agent or employee shall have any power or authority to
bind the Corporation by any contract or engagement, or to pledge its credit, or
to render it liable pecuniarily for any purpose or to any amount.
SECTION 9.02. Checks, Drafts, etc. All checks, drafts, bill of
exchange or other orders for the payment of money, obligations, notes, or other
evidences of indebtedness, bill of lading, warehouse receipts and insurance
certificates of the Corporation, shall be signed or endorsed by such officer or
officers, employee or employees, of the Corporation as shall from time to time
be determined by resolution of the Board of Directors.
ARTICLE X
BOOKS AND RECORDS
SECTION 10.01. Place. The books and records of the Corporation,
including the stock record books, shall be kept at such places within or without
the State of Florida, as may from time to time be determined by the Board of
Directors.
SECTION 10.02. Addresses of Shareholders. Each shareholder shall
designate to the Secretary of the Corporation an address at which notices of
meetings and all other corporate notices may be served upon or mailed, and if
any shareholder shall fail to designate such address, corporate notices may be
served by mail directed to the shareholder's last know post office address, or
by transmitting a notice thereof to such address by telegraph, cable, or
telephone.
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ARTICLE XI
SHARES AND THEIR TRANSFER
SECTION 11.01. Certificates for Shares. Every owner of shares of the
Corporation shall be entitled to have a certificate certifying the number of
shares owned by such owner in the Corporation and designating the class of
shares to which such shares belong, which shall otherwise be in such form, in
conformity to law, as the Board of Directors shall prescribe. Each such
certificate shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary of the Corporation.
SECTION 11.02. Record. A record shall be kept of the name of the
person, firm or corporation owning the shares of the Corporation issued, the
number of shares represented by each certificate, and the date thereof, and, in
the case of cancellation, the date of cancellation. The person in whose name
shares stand on the books of the Corporation shall be deemed the owner thereof
for all purposes as regards the Corporation.
SECTION 11.03. Transfer of Shares. Transfers of shares of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by such holder's attorney thereunto authorized, and on the
surrender of the certificate or certificates for such shares properly endorsed
or accompanied by a properly executed stock power.
SECTION 11.04. Closing of Transfer Books; Record Dates. Insofar as
permitted by law, the Board of Directors may direct that the stock transfer
books of the Corporation be closed for a period not exceeding seventy (70) days
preceding the date of any meeting of shareholders or the date for the payment of
any dividend or the date for the allotment of rights or the date when any change
or conversion or exchange of shares of the Corporation shall go into effect, or
for a period not exceeding seventy (70) days in connection with obtaining the
consent of shareholders for any purpose; provided, however, that in lieu of
closing the stock transfer books as aforesaid, the Board of Directors may,
insofar as permitted by law, fix in advance a date, not exceeding seventy (70)
days preceding the date of any meeting of shareholders or the date for the
payment of any dividend or the date for the allotment of rights or the date when
any change or conversion or exchange of shares of the Corporation shall go into
effect, or a date in connection with obtaining such consent, as a record date
for the determination of the shareholders entitled to notice of, and to vote at,
any such meeting or any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the rights
in respect of any change, conversion or exchange of shares of the Corporation,
or to give such consent, and in each such case shareholders and only such
shareholders as shall be shareholders of record on the date so
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fixed shall be entitled to notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend, or to receive such
allotment of rights, or to exercisesuch rights or to give such consent, as the
case may be, notwithstanding any transfer of any shares on the books of the
Corporation after any such record date fixed as aforesaid.
SECTION 11.05. Lost, Destroyed or Mutilated Certificates. In case of
the alleged loss or destruction or the mutilation of a certificate representing
shares of the Corporation, a new certificate may be issued in place thereof, in
the manner and upon such terms as the Board of Directors may prescribe.
ARTICLE XII
SEAL
The Board of Directors may provide for a corporate seal which shall be
in the form of a circle and shall bear the name of the Corporation and the state
and year of incorporation.
ARTICLE XIII
FISCAL YEAR
Except as from time to time otherwise provided by the Board of
Directors, the fiscal year of the Corporation shall be the year or other fiscal
period ending on the last day of December of each year.
ARTICLE XIV
AMENDMENTS
All By-Laws of the Corporation shall be subject to alteration or
repeal, and new By-Laws may be adopted either by the vote of a majority of the
outstanding shares of the Corporation entitled to vote in respect thereof, or by
the vote of the Board of Directors, provided that in each case notice of the
proposed alteration or repeal or of the proposed new By-Laws be included in the
notice of the meeting at which such alteration, repeal or adoption is acted
upon, and provided further that any such action by the Board of Directors may be
changed by the shareholders, except that no such change shall affect the
validity of any actions theretofore taken pursuant to the By-Laws as altered,
repealed or adopted by the Board of Directors.
16
NOVOSTE CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
Amended and Restated August 20, 1996 and as Amended February ___,
1997
1. PURPOSE. This Stock Option Plan ("Plan") is established to provide
incentives for selected persons to promote the financial success and progress of
Novoste Corporation ("Company") by granting such persons options to purchase
shares of common stock of the Company.
2. DEFINITION OF "NON-EMPLOYEE DIRECTOR". As defined by Regulation
240.16b-3 under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), a "Non-Employee Director" is a person not currently an officer of the
Company or a parent or subsidiary, who does not receive compensation either
directly or indirectly as a consultant of the Company (except for an amount not
required to be disclosed under Item 404(a) of Regulation S-K, e.g., not more
than $60,000), does not have an interest in a transaction requiring disclosure
under Item 404(a) of Regulation S-K, and is not engaged in a business
relationship which would require disclosure under Item 404(b) of Regulation S-K
(e.g., where the director has a ten percent or more equity interest in an entity
which makes or receives payments in excess of five percent of the Company's or
that entity's consolidated gross revenues).
3. ADOPTION OF PLAN; STOCK OPTION AND COMPENSATION COMMITTEE. This Plan
shall be effective on the date that it is adopted by the Stock Option and
Compensation Committee ("Committee") of the Board of Directors of the Company.
The Committee shall at all times be composed only of two or more Non-Employee
Directors. The Committee shall have and may exercise any and all of the powers
relating to the administration of this Plan and the grant of options hereunder
as are set forth herein.
4. ADMINISTRATION.
(a) This Plan shall be administered by the Committee.
(b) The Committee shall have the authority to (i) exercise all of the
powers granted to it under this Plan, (ii) construe, interpret
and implement this
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Plan and any Grants (as defined below) executed pursuant to
Section 8 hereof, (iii) prescribe, amend and rescind rules and
regulations relating to this Plan, (iv) make all determinations
necessary or advisable in administering this Plan and (v) correct
any defect, supply any omission and reconcile any inconsistency
in this Plan.
(c) The determination of the Committee on all matters relating to
this Plan or any Grant shall be final, binding and conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any
award thereunder.
5. TYPES OF OPTIONS AND SHARES. Options granted under this Plan ("Options")
may be either (a) incentive stock options ("ISOs") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended ("Code"), or (b)
nonqualified stock options ("NQSOs"), as designated at the time of grant. The
shares of stock that may be purchased upon exercise of Options granted under
this Plan ("Shares") are shares of the common stock of the Company.
6. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan is 2,500,000 Shares. Such number of
Shares shall be subject to adjustment as provided in this Plan. If any Option is
terminated in whole or in part for any reason without being exercised in whole
or in part, the Shares thereby released from such Option shall be available for
purchase under other Options subsequently granted under this Plan. At all times
during the term of this Plan, the Company shall reserve and keep available such
number of Shares as shall be required to satisfy the requirements of outstanding
Options under this Plan.
7. ELIGIBILITY. Options may be granted only to such employees, officers,
consultants and independent contractors of the Company or any Parent, Subsidiary
or Affiliate of the Company (as defined below) as the Committee shall select
from time to time in its sole discretion ("Optionees"), provided that only
employees of the Company or a Parent or Subsidiary of the Company shall be
eligible to receive ISOs. An Optionee may be granted more than one
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Option under this Plan. As used in this Plan, the following terms shall have the
following meanings:
(a) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
(c) "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
8. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine whether
each Option is to be an ISO or a NQSO, the number of Shares for which the Option
shall be granted, the exercise price of the Option, the periods during which the
Option may be exercised, and all other terms and conditions of the Option,
subject to the following terms and conditions:
(a) Form of Option Grant. Each Option granted under this Plan shall be
evidenced by a written Stock Option Grant ("Grant") in such form (which need not
be the same for each Optionee) as the Committee shall from time to time approve,
which Grant shall comply with and be subject to the terms and conditions of this
Plan.
(b) Exercise Price. The exercise price of an Option shall be not less
than the Fair Market Value (as defined herein) in
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the case of an ISO, or 85% of the Fair Market Value in the case of a NQSO, of
the Shares at the time that the Option is granted. The term "Fair Market Value"
means the closing sale price for a Share on the immediately preceding trading
date as reported on The Nasdaq National Market or, if no closing sale price
shall have been made on such relevant date, on the next preceding day on which
there was a closing sale price; provided, however, that if no closing sale price
shall have been made within the ten business days preceding such relevant date,
or if deemed appropriate by the Committee for any other reason, the Fair Market
Value of such Shares shall be as determined by the Committee. In no event shall
the Fair Market Value of any Share be less than its par value.
(c) Exercise Period. Options shall be exercisable within the times or
upon the events determined by the Committee as set forth in the Grant; provided,
however, that no Option shall be exercisable after the expiration of ten years
from the date the Option is granted and is subject to earlier termination in the
event of the death or the voluntary or involuntary termination of the Optionee
as set forth herein; provided, further, that no ISO granted to a Ten Percent
Shareholder (as defined by Section 422 of the Code) shall be exercisable after
the expiration of five years from the date the ISO is granted.
(d) Limitations on ISOs. The aggregate Fair Market Value (determined
as of the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by an Optionee during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) shall not exceed $100,000.
(e) Limitations on ISOs and NQSOs. Notwithstanding anything herein,
the maximum aggregate number of Shares with respect to which Options, whether
ISOs or NQSOs, may be granted to any person or entity eligible therefor under
this Plan within any one calendar year is 100,000 Shares.
(f) Date of Grant. The date of grant of an Option shall be the date on
which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option shall be
delivered to the Optionee within a reasonable time after the granting of the
Option.
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9. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the Company
of a written notice and exercise agreement in a form approved by the Committee,
stating the number of Shares being purchased, the restrictions imposed on the
Shares and such representations and agreements regarding the Optionee's
investment intent and access to information as may be required by the Company to
comply with applicable securities laws, together with payment in full of the
exercise price for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made (i) in cash, (ii) by
surrender of Shares having a Fair Market Value equal to the exercise price of
the Option or (iii) by any combination of the foregoing where approved by the
Committee in its sole discretion; provided, however, in the event of payment for
the Shares by method (ii) above, the Shares so surrendered, if originally issued
to the Optionee upon exercise of an Option(s) granted by the Company, shall have
been held by the Optionee for more than six months.
(c) Withholding Taxes. Prior to issuance of the Shares upon exercise
of an Option, the Optionee shall pay or make adequate provision for any federal,
state or local withholding obligations of the Company, if applicable.
(d) Limitations on Exercise. Notwithstanding the exercise periods set
forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(i) An Option shall not be exercisable unless such exercise is in
compliance with the Securities Act of 1933, as amended ("Securities Act"),
and all applicable state securities laws, as they are in effect on the date
of exercise.
(ii) The Committee may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an Option, provided that
such minimum number will not prevent the Optionee from exercising the
Option for the full number of Shares as to which the Option is then
exercisable.
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10. DEATH OR VOLUNTARY OR INVOLUNTARY TERMINATION. Should an Optionee die,
become disabled, retire or cease to be employed by or associated with the
Company for any other reason, all Options held by the Optionee shall lapse
immediately following the last day that the Optionee is employed by or
associated with the Company except that should an Optionee die the time during
which the Option may be exercised shall be extended three months for an Optionee
that held ISOs and six months for an Optionee that held NQSOs. In all other
cases the Committee, in its discretion, may extend the time during which the
Option may be exercised; provided, however, the maximum period of an extension
that may be allowed shall be three months for an Optionee that held ISOs and six
months for an Optionee that held NQSOs. During any such extension of the
expiration date by the Committee, the Option may be exercised only for the
number of Shares for which it could have been exercised on such termination
date, subject to any adjustment under Section 12 herein.
11. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the rights
of a shareholder with respect to any Shares subject to an Option until the
Option has been validly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date of
exercise, except as provided in this Plan.
12. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding Shares is changed by a stock dividend, stock split, reverse stock
split, combination, reclassification or similar change in the capital structure
of the Company without consideration, the number of Shares available under this
Plan and the number of Shares subject to outstanding Options and the exercise
price per share of such Options shall be proportionately adjusted, subject to
any required action by the Committee, Board of Directors or shareholders of the
Company and compliance with applicable securities laws; provided, however, that
no certificate or scrip representing fractional shares shall be issued upon
exercise of any Option and any resulting fractions of a Share shall be ignored.
13. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of the Company or any Parent, Subsidiary or Affiliate of the Company or limit in
any way the right of the Company or any Parent, Subsidiary or Affiliate of the
6
<PAGE>
Company to terminate the Optionee's employment at any time, with or without
cause.
14. COMPLIANCE WITH LAWS. The grant of Options and the issuance of Shares
upon exercise of any Options shall be subject to and conditioned upon compliance
with all applicable requirements of law, including without limitation compliance
with the Securities Act, compliance with all applicable state securities laws
and compliance with the requirements of any stock exchange on which the Shares
may be listed. The Company shall be under no obligation to register the Shares
with the Securities and Exchange Commission or to effect compliance with the
Securities Act or with the registration or qualification requirement of any
state securities laws or stock exchange.
15. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company
may reserve to itself or its assignee(s) in the Grant (a) a right of first
refusal to purchase any Shares that an Optionee (or a subsequent transferee) may
propose to transfer to a third party and (b) a right to repurchase any or all
Shares held by an Optionee upon the Optionee's termination of employment or
service with the Company or a Parent, Subsidiary or Affiliate of the Company for
any reason within a specified time as determined by the Committee at the time of
grant at (i) the Optionee's original purchase price, (ii) the Fair Market Value
of such Shares as determined by the Committee in good faith or (iii) a price
determined by a provision set forth in the Grant.
16. CHANGE OF CONTROL. Notwithstanding any contrary terms in the Grant of
Options hereunder, in the event of a Change of Control (as defined herein), all
outstanding Options shall accelerate and become immediately fully exercisable.
For purposes of this Plan, a "Change In Control" shall mean (i) the sale or
other disposition to a person, entity or group (as such term is defined in Rule
13d-5 under the Exchange Act) of 50% or more of the Company's consolidated
assets, (ii) the acquisition of 50% or more of the outstanding Shares by a
person or group (as such term is defined in Rule 13d-5) or (iii) if the majority
of the Company's Board of Directors consists of persons other than Continuing
Directors (as defined herein). The term "Continuing Director" shall mean any
member of the Company's Board of Directors on the effective date of this Plan
and any other member of the Board of Directors who shall be recommended or
elected to succeed or become a Continuing
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<PAGE>
Director by a majority of the Continuing Directors who are then members of the
Board of Directors. The aggregate Fair Market Value (determined at the time an
Option is granted) of ISOs which first become exercisable in the year of such
dissolution, liquidation, merger, sale of stock or sale of assets cannot exceed
$100,000. Any remaining accelerated Options shall be NQSOs.
17. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect (including, but not limited to, any
form of Grant, agreement or instrument to be executed pursuant to this Plan);
provided, however, that shareholder approval shall be required to be obtained by
the Company if required to comply with the provisions of Section 162(m) of the
Code, or the listed company requirements of The Nasdaq National Market or of a
national securities exchange on which the Shares are traded, or other applicable
provisions of state or federal law or self-regulatory agencies; provided,
further, that no amendment of this Plan may adversely affect any then
outstanding Options or any unexercised portions thereof without the written
consent of the Optionee.
18. TERM OF PLAN. No Option shall be granted pursuant to this Plan on or
after May 26, 2002, but Options theretofore granted may extend beyond that date
and the terms of this Plan shall continue to apply to such Options and to any
Shares acquired upon exercise thereof.
19. APPLICABLE LAW. The validity, interpretation and enforcement of this
Plan shall be governed in all respects by the laws of the State of Florida and
the United States of America.
20. ISSUANCE OF SHARES. The Shares, when issued and paid for pursuant to
the Options granted hereunder, shall be issued as fully paid and non-assessable
Shares.
21. NON-TRANSFERABILITY OF ISOs. No ISO granted pursuant to the Plan shall
be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner otherwise than by will or by the laws of descent or distribution and an
ISO may be exercised during the lifetime of the Optionee only by such Optionee.
8
<PAGE>
22. TRANSFERABILITY OF NQSOs. A NQSO may be sold, pledged, assigned,
hypothecated, transferred or disposed of as determined by the Committee and as
set forth in a Grant with an Optionee.
9
<PAGE>
[TO BE TYPED ON LETTERHEAD
OF NOVOSTE CORPORATION]
INCENTIVE STOCK OPTION AWARD
Date of Grant [DATE]
Recipient [NAME]
Number of Shares [NUMBER]
Purchase Price
per Share [PRICE-PER-SHARE]
Total Purchase
Price [NUMBER] x [PRICE-PER-SHARE]
Dear [NAME]:
We are pleased to inform you that, as a key employee of Novoste Corporation, you
are hereby granted an option to purchase shares of Novoste Common Stock, par
value $.01 per share, in the amount and at the price per share stated above.
This option is granted pursuant to the Novoste Corporation Amended and Restated
Stock Option Plan, a copy of which is attached. This option is exercisable for a
period of ten years from the date of the grant as stated above.
The right to exercise your option will vest per the following schedule:
From the date of the No part of the option grant shall vest
grant for one year
<PAGE>
More than one but less 25% of the option grant shall vest
than two years after
the date of the grant
More than two but less 50% of the option grant shall vest
than three years after
the date of the grant
More than three but 75% of the option grant shall vest
less than four years
after the date of the
grant
More than four years 100% of the option grant shall vest
after the date of the
grant
You may purchase all shares that are vested at any time prior to the expiration
of the option by delivering full payment to the Corporate Secretary. You may
purchase all or part of the shares which are vested; however, you may not make
partial purchases in increments of less than 100 shares.
This option cannot be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution. Only you may exercise this option during your lifetime.
Sincerely,
Thomas D. Weldon
President and CEO
Frame Agreement regarding Purchases
and Investment Grant
between
Novoste Corporation
4350/C International Boulevard
Norcross, GA 30093/3027
represented by the president and CEO Thomas D.Weldon
hereinafter
- customer -
and
der Bebig Isotopentechnik und Umweltdiagnostik GmbH
Robert-Rossel-Stra(beta)e 10, 13125 Berlin
represented by the managing director Dr. Andreas Eckert
hereinafter
- supplier -
Preamble
1. The customer produces medical appliances and has developed a catheter for
the inhibition and prevention of proliferative responses of a vessel or
duct to interventional therapy ("Restenosisgerat").
2. The supplier produces radioactive strontium 90-sources (Bebig product code
Sr.O. SO3), which are applicable to the "Restenosisgerat". These isotopes
are subject of the following supply contract. They are being delivered in
units as "seed-train".
<PAGE>
-2-
3. On November 28, 1994 the parties concluded a frame agreement, part of which
among other things was the delivery of seed-trains, which are subject of
this contract of sale. This frame agreement remains valid except where
otherwise provided in the present contract. On August 22, 1995 the parties
concluded an option contract. This contract also remains valid.
I.
Contract concerning Grants
ss. 1
Payment Liability
1. The customer pays a monthly investment grant amounting to 100.000,- DM,
i.e. a total of 1.5 DM million, on the next 15 months following the signing
of this contract.
2. The customer remits this investment grant until the third day of each month
to the account no. 0000424648 with the Commerzbank, Bankleitzahl 120 400
00.
ss. 2
Use of Grants
1. The grant will be used for the building of a production site in Berlin for
the product to be supplied, namely radioactive strontium-90 seed-trains. To
this end the supplier will rent a part of building which will exclusively
be used for the production of the said product; he will then effect the
necessary renovation works and supply this part of a building with the
production machinery required. The machinery should guarantee a capacity of
at least * seed-trains per year by December 31, 1997.
2. The supplier agrees not to pledge, hypothecate, encumber or sell the assets
purchased with the grant in any way. The part of the building rented and
all the equipment
* Denotes confidential portions of this agreement that have been omitted and
filed separately with the Securities and Exchange Commission.
<PAGE>
-3-
purchased with the grant specified in ss. 1 shall be used exclusively for
the production of materials as stated in this contract for the sole benefit
of the customer. No other companies products are to be manufactured with
the equipment purchased through the grant, neither are products for other
companies to be manufactured in the same part of the building. The supplier
will make sure that all approvals necessary to use the part of the building
for the production of radioactive materials will be assigned.
3. The rental contract must state explicitly that the production site will be
used as a radioactivity laboratory (C-laboratory). The rental contract for
the part of the building must also hold a provision stating that the lease
maybe assigned to third parties.
ss. 3
Time Schedule for the Investments
1. According to ss. 2 the investments are effected in adherence with the
following time schedule:
Leasing a suitable building until February 1, 1997
Renovation of the building
including installation of a laser until May 1, 1997
Obtaining the necessary authorizations until October 1, 1997
Start of production December 31, 1997
2. The supplier will produce * seed-trains in 1997 as specified in ss. 10.
These seed-trains may be produced in another production site until the new
facilities are operative. Starting in 1998 the new production site must
have an annual capacity of at least * pieces.
3. The supplier has to inform the customer immediately if he cannot adhere to
the above time schedule. In case of delays of more than one month the
customer is entitled to stop the investment grants until the next step of
investment is realised.
* Denotes confidential portions of this agreement that have been omitted and
filed separately with the Securities and Exchange Commission.
<PAGE>
-4-
ss. 4
Repayment Obligation
If the machinery is not put into operation by December 31, 1997 the customer is
entitled to claim for repayment of the total amount of investment grants paid so
far, plus 5 % interest. This repayment obligation must take into account that
the value of the equipment purchased through the grant is reduced each year by
20% starting in 1998 to reflect the passage of time.
ss. 5
Information and Controlling Rights
1. The supplier is obliged to account quarterly for the use of the funds
received and for the progress of the investments. For this purpose he has
to give written proof to the customer of the funds used, their purpose, the
recipient of the funds as well as their date of payment.
2. The customer may appoint an independent certified public accountant to
verify the above costs by auditing the account books and other documents of
the supplier.
3. The supplier has to draw up a register indicating the number and the type
of the production machinery; this register has to represent the actual
state by the end of the last month in question.
<PAGE>
-5-
ss. 6
Insurance
The supplier is obliged to conclude all appropriate, customary and necessary
insurances for the continuance of the production site including a business
interruption insurance (use and occupancy insurance). The insurance sum must be
corresponding to the sale value of the respective production volume, at least *
US-$. Beneficiary of insurance must be the customer. The respective insurance
policy must be delivered to the customer within one month after the first
payment according to I ss. 1.1. If the insurance contract can not provide such a
condition the supplier assigns all claims and benefits from the insurance to the
customer irrevocably by this contract. The customer hereby declares the
acceptance of this assignment.
ss. 7
Crediting against Purchasing Price
The parties of this contract concluded an option contract as of August 22, 1995;
which grants a seven years option for the customer to buy all of the supplier's
tangible and intangible assets including customers' lists, instructions, patents
and licences, which are used or can be used for the production of isotopes. The
purchasing price amounts to 5 million US-$. If the customer makes use of this
option, the investment grant agreed upon within this contract amounting to 1.5
million DM will be credited against the purchasing price. This option is also
granted for any existing or future subsidiary of the customer.
* Denotes confidential portions of this agreement that have been omitted and
filed separately with the Securities and Exchange Commission.
<PAGE>
-6-
II.
Frame Supply Contract
ss. 8
Quantity to be supplied
1. The customer has a supposed demand of isotopes of approx. * seed-trains in
1997 and approx. * seed-trains in each of the following years.
2. The supplier hereby takes over the obligation to cover the annual need up
to the amount mentioned above, upon receipt of order from the customer;
delivery can be effected in parts. The customer, however, is not obliged to
accept the delivery unless formally ordered.
ss. 9
Price
The price of the first * seed-trains per year is * per seed-train ex works. This
price is binding until December 31, 2000. Prices can be negotiated for any
seed-train ordered beyond the quantity of * per year after December 31, 1997.
The customer is also entitled to negotiate new prices if this agreement inhibits
a marketing of the product with a price able to meet the competition. From
January 1 1998 on prices of units exceeding the amount of * per year are subject
to negotiation.
After December 31, 2000 the parties agree upon a new price. Prices will only
increase if the supplier gives proof of circumstances that justify such an
increase.
* Denotes confidential portions of this agreement that have been omitted and
filed separately with the Securities and Exchange Commission.
<PAGE>
-7-
ss. 10
Terms of Delivery
1. Delivery is effected upon ordering the partial quantity in question; the
delivery period should be six months following receipt of order. The
supplier is obliged to observe the quality standard as attached to the
customers orders.
2. The parties have agreed on the following delivery schedule for 1997:
4 seed-trains per week starting on January 1997 until a quantity of * is
received.
3. Should the supplier fall behind his delivery schedule by more than 15 %,
the customer shall have the right to withhold the monthly investment grant
specified in I. ss. 1 until such a time that the supplier is back on
schedule.
4. Should it be established that the supplier will not be able to resume the
delivery of the products, which is presumed to be the case if delivery has
been discontinued for a period longer than 6 months, the customer is
entitled to a claim for repayment of the total amount of investment grants
paid so far according to I. ss. 4. This clause is not valid if the
discontinuation of delivery is due to an omission of orders.
5. All prices are ex works Berlin. With shipment, all property rights and all
risks of ownership are passed to the customer. The containers necessary for
shipment of the isotopes will be provided by the customer at his own cost.
ss. 11
Payment
Payment has to be effected within two weeks after the customer has received an
invoice from supplier and should be made to an account of the supplier with a
bank in Germany.
* Denotes confidential portions of this agreement that have been omitted and
filed separately with the Securities and Exchange Commission.
<PAGE>
-8-
ss. 12
Cancellation
1. The frame supply contract is firm until November 30, 2000. After that date
it can be cancelled regularly requiring a six months notice by the end of
each calendar year.
2. Notwithstanding this, the parties are entitled to give notice to quit for
cause.
3. If the supplier gives notice to quit for cause for a reason outside the
customer's range of responsibility, or if the customer gives notice to quit
for cause for a reason within the suppliers range of possibility, the
supplier is obliged to repay the investment grant according to I. ss. 4.
4. The frame supply contract terminates if the customer makes use of its
option right according to I. ss. 7. Partial deliveries ordered until the
day the customer exercises its option right, still have be delivered and
paid in accordance with this contract.
ss. 13
Exclusivity
By frame contract dated November 28, 1994 the parties have agreed that Novoste
is not to purchase, lease or otherwise acquire directly or indirectly a
radioactive source of like isotope for use in the treatment of restenosis from
any other supplier or party.
This obligation of the customer is replaced by the following:
The customer agrees not to buy more than 30 % of the annual requirement
according to ss. 8 of this contract from a third party. The customer is obliged
to inform the supplier immediately after such an order is placed. The supplier
remains not entitled to deliver to any other party.
<PAGE>
-9-
III.
General Conditions
ss. 14
Governing Law and Place of Jurisdiction
German law has to be applied to this contract. All disputes arising in
connection with the present contract shall be finally settled under the rules of
conciliation and arbitration of the International Chamber of Commerce by one or
more arbitrators appointed in accordance with the said Rules.
ss. 15
General Business Conditions
Neither the customer's selling conditions nor the supplier's delivery conditions
can be applied to this frame contract and to the single orders effected
accordingly.
ss. 16
Modifications
All modifications and additions to this contract shall be in writing. This also
applies to this condition.
ss. 17
Invalid Conditions
If single conditions of this contract become invalid, this does not affect the
remaining conditions. The invalid condition then has to be replaced by a
condition which best matches its economic and legal purpose.
Norcross, the .............. Berlin, the .............
- ------------------------ ------------------------
Novoste Corporation Bebig Isotopentechnik und
Umweltdiagnostik GmbH
AGREEMENT AND RELEASE
This AGREEMENT AND RELEASE (this "Agreement") is made this ____ day of
November, 1996 between JONATHAN J. ROSEN, PH.D., an individual residing at 1407
Tree Ridge Parkway, Alpharetta, Georgia 30202 ("Employee"), and NOVOSTE
CORPORATION, a Florida corporation with offices at 4350-C International
Boulevard, Norcross, Georgia 30093 ("Novoste").
WHEREAS, the parties desire to set forth their agreement regarding the
resignation of Employee as an employee and officer of Novoste and certain
related matters;
NOW, THEREFORE, the parties hereby agree as follows:
1. Employment.
Novoste will continue to employ Employee as its Vice President,
Product Development, and Employee will continue to work for Novoste in such
capacity, through February 28, 1997. Through such date, Novoste will continue to
pay Employee his current semimonthly salary of $5416.67 and provide Employee
with such medical insurance, life insurance, disability insurance and similar
benefits as Employee currently receives. Effective as of such date, Employee
hereby voluntarily resigns as an employee and Vice President, Product
Development of (and from any other position or office he may hold in) Novoste.
Novoste and Employee each acknowledge and agree that Employee shall be
entitled to receive any bonus earned by Employee through December 31, 1996 (but
no bonus with respect to any period thereafter) under the terms of the 1996
Incentive Plan of Novoste (i.e., a bonus equal to 10% of the 1996 Milestone
Pools aggregating $170,000 which are actually distributed to management under
such Plan, or a maximum bonus of $17,000). Novoste agrees to promptly cause a
change in the beneficiary of the life insurance policy currently maintained by
Novoste with respect to Employee from Novoste to Nancy A. Rosen. Novoste further
agrees to continue to pay the premiums of such policy through the end of its
current term (i.e., January 12, 1997), at which time Novoste agrees to cooperate
in the assignment to Employee of such policy (provided that such assignment is
allowed by the insurer named in such policy).
<PAGE>
2. Computer Equipment.
Novoste hereby transfers to Employee all of Novoste's right, title and
interest in and to the computer equipment currently used by Employee which is
described on Exhibit A hereto.
3. Consultancy.
a. Novoste agrees to engage Employee as a consultant for a
sixteen-month period commencing March 1, 1997 and ending June 30, 1998. During
such sixteen-month period, Employee shall provide such consulting services to
Novoste at mutually convenient times, whether in person, by telephone, written
or electronic communication or otherwise, as Novoste shall reasonably request
from time to time. Such consulting services shall include, but not be limited
to, (i) services relating to regulatory matters such as assisting Novoste with
submissions to the FDA or other regulatory authorities and responses to comments
or inquiries from such regulatory authorities and (ii) computer-related services
such as graphic design, video development and animation.
b. Novoste shall pay to Employee the following amounts as consulting
fees on the successive dates indicated below (or next business day should any of
such dates not fall on a business day for Novoste):
$50,000 On the eighth day following
execution and delivery hereof
$30,000 On the eighth day following
execution and delivery of the
2/28/97 Extension of Release
$10,000 On March 31, 1997
$30,000 On June 30, 1997
$30,000 On September 30, 1997
$30,000 On the eighth day following
execution and delivery of the
6/30/98 Extension of Release
4. "Lock-Up".
Employee agrees that he will not, directly or indirectly, sell, offer
for sale, sell short, contract to sell, pledge, grant any option to purchase, or
otherwise dispose of any shares of common stock of Novoste (including, without
limitation, any such shares issued or issuable upon the exercise of stock
options) from the date of this Agreement through June 30, 1998 other than up to
an aggregate of 50,000 such shares during the three-month period from March 1,
1997 through May 31, 1997 and thereafter only up to an aggregate of 20,000 such
shares in any given calendar month during the period from June 1, 1997 through
June 30, 1998. Without limiting any obligations of Employee under this Agreement
or applicable law, the Company represents to Employee that the shares of its
common stock issuable upon exercise of Employee's stock
2
<PAGE>
options described in Section 5b are covered by a Form S-8 Registration Statement
filed with the SEC.
5. Release.
a. For purposes of this Agreement, an "Affiliate" of Novoste shall
mean any person, corporation, partnership, firm, association, trust or other
entity, directly or indirectly through one or more intermediaries, controlling,
controlled by or under common control with Novoste or any such person.
b. In consideration of the transfer of computer equipment to Employee
under Section 2 hereof and other good and valuable consideration, Employee, for
and on behalf of himself, his heirs, distributees, executors, administrators,
legal representatives and assigns hereby WAIVES, RELEASES AND FOREVER DISCHARGES
AND ACQUITS Novoste and each of its Affiliates and the officers, directors,
shareholders, partners, employees, agents, attorneys and representatives of each
of Novoste and each of its Affiliates, past, present and future, and the heirs,
distributees, executors, administrators, legal representatives, successors and
assigns of each of the foregoing (Novoste and all of such persons and entities
being collectively referred to as the "Releasees") from any and all actions,
causes of action, suits, debts, demands and claims (including, without
limitation, amounts for attorneys' fees and expenses), known or unknown,
asserted or unasserted, which Employee ever had, now has or hereafter can, shall
or may have against any of the Releasees arising at any time directly or
indirectly out of, or in any way connected with Employee's employment with
Novoste and/or any other association, relationship or dealing with any of the
Releasees from the beginning of such employment (or, if earlier, such other
association, relationship or dealing) to the date of this Agreement, including,
but not limited to:
(1) claims arising out of federal, foreign, state or local
employment discrimination laws, regulations or ordinances, such as for sex, age,
race, color, national origin, marital status, sexual orientation or preference,
disability, religion, handicap or status as a Vietnam or special disabled
veteran, including without limitation, the Federal Age Discrimination in
Employment Act, as amended ("ADEA") (subject to the right of revocation set
forth in Section 7b), the Employee Retirement Income Security Act, the Family
and Medical Leave Act of 1993 and the Georgia Fair
3
<PAGE>
Employment Practices Act, in each case to the extent applicable to Novoste and
Employee;
(2) claims for wrongful or abusive discharge arising at law or in
equity;
(3) claims for implied or express contracts, personal injury or
tort claims or claims arising under public policy;
(4) claims for workers compensation, claims for continued pay,
accrued vacation pay or any other claim for wages, compensation, fringe benefits
or reinstatement to employment, including but not limited to claims for bonuses
or deferred or incentive compensation;
(5) claims relating to any capital stock or other securities
issued by Novoste;
(6) any other claim, of any kind, nature or description
whatsoever, at law or in equity, which Employee or his heirs, distributees,
executors, administrators, legal representatives, successors or assigns had, now
have or hereafter can, shall or may have, for, upon or by reason of any matter,
cause or thing whatsoever;
provided, however, that nothing in this Section 5 shall be construed as
discharging any obligations of Novoste expressly provided for under this
Agreement or (with respect to the stock options currently held by Employee to
purchase an aggregate of 139,875 shares of common stock of Novoste at $.25 per
share and 7,500 such shares at $3.20 per share) the Amended and Restated Stock
Option Plan of Novoste (the "Stock Option Plan").
6. Extensions of Release; Non-Competition Agreement; Breaches.
a. In consideration of the payments to be paid to Employee under
Section 3 and other good and valuable consideration, Employee agrees to execute
and deliver to Novoste, (i) within seven days after February 28, 1997 and June
30, 1998, a notarized version of the form of Extension of Release attached
hereto as Exhibit B (dated as of February 28, 1997 or June 30, 1998, as the case
may be) and (ii) simultaneously with the execution hereof, a non-competition and
confidentiality agreement in the form attached hereto as Exhibit C (the
"Non-Competition Agreement").
4
<PAGE>
b. Without limiting any other rights or remedies of Novoste under this
Agreement or the Surviving Agreements (including without limitation the right to
seek damages in arbitration pursuant to Section 10a hereof and equitable relief
under the Non-Competition Agreement), in the event of any breach by Employee of
this Agreement or any of the Surviving Agreements (as defined in Section 7f),
Novoste shall not be entitled to refrain from making any payments to Employee
hereunder (other than the $30,000 consulting fee due on the eighth day following
execution and delivery of the 6/30/98 Extension of Release) unless and until
such breach shall have been determined to have occurred by an arbitrator
pursuant to Section 10a hereof or, if applicable, a court of competent
jurisdiction.
7. Certain Acknowledgements.
Employee acknowledges and agrees that:
a. Employee shall have no authority and shall take no action to bind
or to incur any expense for or on behalf of, or to act in any other manner for
or on behalf of, Novoste during the sixteen-month consulting period set forth in
Section 3 hereof, without the prior written approval of the President or Chief
Financial Officer of Novoste.
b. subject to the provisions set forth in the next two sentences, this
Agreement constitutes a knowing and voluntary waiver of all rights or claims he
may have against Novoste under ADEA, including, but not limited to, all claims
of age discrimination in employment and all claims of retaliation in violation
of ADEA. For a period of seven (7) days following his execution of this
Agreement, Employee may revoke this Agreement by written notice to such effect
to Novoste. In the event of such revocation, this Agreement shall be null and
void ab initio as to all parties. Accordingly, this Agreement shall not become
enforceable until the expiration of such seven-day period occurs without any
such revocation by Employee.
c. Novoste must offer Employee an opportunity to consider the
provisions of this Agreement for up to twenty-one (21) days. Employee
acknowledges and agrees that he has had ample time in which to consider, and
review with an attorney of his choosing, this Agreement prior to its execution
by him.
5
<PAGE>
d. the Stock Option Plan provides that Employee must exercise options
granted to him thereunder prior to the last day of his employment (i.e.,
February 28, 1997) in order to avoid forfeiture of such options. Employee has
been advised to consult with his tax advisor concerning the tax treatment of any
exercise of such options, and any sale or other transfer of shares of common
stock issued upon any such exercise, and agrees to notify promptly the Chief
Financial Officer of Novoste regarding any sale or other transfer by Employee of
any shares issued upon any such exercise which occurs within one year from the
date of such exercise.
e. any payments, benefits or other consideration provided by Novoste
to Employee under the terms of this Agreement do not constitute an admission by
Novoste that it has, had, or has violated any legal or other obligation to
Employee or has violated any law respecting Employee's employment. Employee
further understands and agrees that all payments made hereunder are subject to
any and all applicable withholding for income taxes, FICA and other such
deductions.
f. nothing in this Agreement shall limit Employee's obligations under
any of the lock-up agreement dated March 25, 1996 executed by Employee in favor
of Novoste and the underwriters of its initial public offering, the Stock Option
Plan, the Non- Competition Agreement or the conflict of interest or business
conduct agreements dated June 2, 1992 (all of the foregoing being collectively
referred to as the "Surviving Agreements"). Employee acknowledges and agrees
that he is bound by the terms and conditions of each of the Surviving Agreements
and that each shall remain in full force and effect until terminated in
accordance with its terms.
8. No Disparagement; Letter of Reference.
Employee agrees not to make any disparaging or derogatory comments to
any person or entity, whether in writing or orally, about Novoste, any aspect of
its business, or its officers, directors, employees, or agents and Novoste
agrees not to make any disparaging or derogatory comments to any person or
entity, whether in writing or orally, about Employee or any aspect of his
performance. The parties acknowledge that it is their intention to prepare a
mutually satisfactory letter of reference relating to Employee for use in
providing information to persons or entities seeking to employ or engage
Employee.
6
<PAGE>
9. Notices.
All notices under this Agreement shall be in writing and shall be
either personally delivered (including delivery by express couriers such as
Federal Express) or sent by prepaid certified mail, return receipt requested,
addressed to the party to which notice is to be given at the address set forth
at the beginning of this Agreement for such party, or to such other address as
such party may have fixed by notice given in accordance with the terms hereof.
Any notice sent as aforesaid shall be deemed given and effective upon the
earlier of (i) delivery to the address provided for herein and (ii) the date
falling three days after notice of attempted delivery has been left at the
address to which a notice to the intended recipient is to be sent hereunder.
10. Arbitration; Governing Law; Severability
a. In the event of any dispute between the parties hereunder or
otherwise arising out of or relating to this Agreement or the Surviving
Agreements (other than the Non-Competition Agreement), the parties hereto
covenant and agree that such dispute will be resolved only by arbitration,
conducted in Atlanta, Georgia by the American Arbitration Association ("AAA"),
pursuant to its Employment Dispute Resolution Rules, as the same may be amended
from time to time. Each party hereto agrees to participate therein diligently
and in good faith. The determination made in any such arbitration shall be
binding on the parties hereto and may be entered for judgment in any court of
competent jurisdiction. The arbitrator shall award to the prevailing party, if
any (as determined by the arbitrator), all of such party's Costs and Fees (as
defined in the next sentence); provided, however, that unless and until the
arbitrator shall make such award, Novoste and Employee shall share equally the
fees and expenses of the arbitrator and administrative fees of the arbitration
and shall bear its own other Costs and Fees itself. As used in this Section, the
term "Costs and Fees" shall refer to all reasonable pre-award expenses of the
arbitration, including the arbitrator's fees, administrative fees, travel
expenses, out-of-pocket expenses such as copying and telephone, court costs,
witness fees and attorneys' fees.
b. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Georgia.
7
<PAGE>
c. If any provision of this Agreement shall be determined by an
arbitrator pursuant to Section 10a or a court of competent jurisdiction to be
invalid or unenforceable, in whole or in part, this Agreement shall be deemed
amended to delete or modify, as necessary, the offending provision and to alter
the balance of this Agreement in order to render this Agreement valid and
enforceable to the fullest extent permitted under applicable law.
11. Complete Agreement; Modification
Without limiting Section 7f, this Agreement constitutes the complete
understanding between Employee and Novoste with respect to the subject matter
hereof and supersedes any and all prior agreements between them with respect
thereto. This Agreement may not be modified unless such modification is set
forth in a writing signed by the party against whom or which enforcement of such
modification is sought.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the date first above written.
NOVOSTE CORPORATION
__________________________ By:______________________________
JONATHAN J. ROSEN Thomas D. Weldon
President
STATE OF GEORGIA )
) ss.:
COUNTY OF GWINNETT )
On this _____ day of November, 1996, before me personally came
Jonathan J. Rosen, to me known to be the individual described in and who
executed the foregoing instrument and he did duly acknowledge to me that he
executed same.
_______________________________________
Notary Public
My commission expires:_________________
STATE OF GEORGIA )
) ss.:
COUNTY OF GWINNETT )
On the _____ day of November, 1996, before me personally came Thomas
D. Weldon, to me known, who, being by me duly sworn, did depose and say that he
is the President of Novoste Corporation, the corporation described in and which
executed the foregoing instrument, and that he signed his name thereto on behalf
of said corporation.
_______________________________________
Notary Public
My commission expires: _________________
9
<PAGE>
EXHIBIT A
DESCRIPTION OF COMPUTER EQUIPMENT
See attached list of computer equipment.
<PAGE>
EXHIBIT B
EXTENSION OF RELEASE
[Insert February 28, 1997 or June 30, 1998]
Novoste Corporation
4350-C International Blvd.
Norcross, Georgia 30093
Ladies and Gentlemen:
Reference is made to the Agreement and Release, dated November ___,
1996, between Novoste Corporation and the undersigned. The phrase originally
reading "the date of this Agreement" in Section 5b of such Agreement and Release
is hereby amended to read "[Insert February 28, 1997 or June 30, 1998]" (without
modifying any other provision of such agreement).
Sincerely,
Jonathan J. Rosen, Ph.D.
STATE OF GEORGIA )
) ss.:
COUNTY OF GWINNETT )
On this ____ day of ___________, 199_, before me personally came
Jonathan J. Rosen, to me known to be the individual described in and who
executed the foregoing instrument and he did duly acknowledge to me that he
executed same.
_______________________________________
Notary Public
My commission expires: ________________
<PAGE>
EXHIBIT C
NON-COMPETITION AGREEMENT
See attached form of non-competition agreement.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
OF
NOVOSTE CORPORATION
Adopted August 20, 1996 and as Amended February ___, 1997
1. Purpose of Plan.
The purpose of this Non-Employee Director Stock Option Plan ("Plan")
is to provide additional incentives to Non-Employee Directors (as defined below)
of Novoste Corporation ("Company") to promote the financial success and progress
of the Company by granting such persons options to purchase shares of the
Company's Common Stock ("Common Stock"). The options to purchase shares of
Common Stock under this Plan shall not qualify under Section 422 of the Internal
Revenue Code of 1986, as amended.
2. Definition of "Non-Employee Director".
As defined by Regulation 240.16b-3 under the Securities Exchange Act
of 1934, as amended ("Exchange Act"), a "Non-Employee Director" is a person not
currently an officer of the Company or a parent or subsidiary, who does not
receive compensation either directly or indirectly as a consultant of the
Company (except for an amount not required to be disclosed under Item 404(a) of
Regulation S-K, e.g., not more than $60,000), does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K, and is not
engaged in a business relationship which would require disclosure under Item
404(b) of Regulation S-K (e.g., where the director has a ten percent or more
equity interest in an entity which makes or receives payments in excess of five
percent of the Company's or that entity's consolidated gross revenues).
3. Adoption of Plan.
This Plan shall be effective on the date that it is adopted by the
Board of Directors of the Company ("Board"). The Board shall have and may
exercise any and all of the powers relating to the administration of this Plan
and the grant of options hereunder as are set forth herein.
<PAGE>
4. Administration.
(a) This Plan shall be administered by the Board.
(b) The Board shall have the authority to (i) exercise all of the
powers granted to it under this Plan, (ii) construe, interpret
and implement this Plan and any Stock Option Agreements executed
pursuant to Section 8 hereof, (iii) prescribe, amend and rescind
rules and regulations relating to this Plan, (iv) make all
determinations necessary or advisable in administering this Plan
and (v) correct any defect, supply any omission and reconcile any
inconsistency in this Plan.
(c) The determination of the Board on all matters relating to this
Plan or any Stock Option Agreement shall be final, binding and
conclusive.
(d) No member of the Board shall be liable for any action or
determination made in good faith with respect to this Plan or any
award thereunder.
5. Eligibility.
Individuals who are Non-Employee Directors of the Company shall be
eligible to participate in this Plan. Each Non-Employee Director to whom an
option is granted hereunder is referred to as an "Optionee."
6. Shares Subject to this Plan.
The maximum number of shares of Common Stock that may be issued
pursuant to options granted under this Plan to all Optionees is 100,000 shares,
which shares may, at the discretion of the Board, be either authorized but
unissued shares or shares previously issued and reacquired by the Company. Such
number of shares shall be subject to adjustment as provided in this Plan. If any
option is terminated or unpurchased in whole or in part for any reason without
being exercised in whole or in part, the shares thereby released from such
option shall be available for purchase under other options subsequently granted
under this Plan. At all
2
<PAGE>
times during the term of this Plan, the Company shall reserve and keep available
such number of shares of Common Stock as shall be required to satisfy the
requirements of outstanding options under this Plan.
7. Granting of Options; Effective Date.
Until the expiration or sooner termination of this Plan, the Board, at
any time and from time to time, may grant options to Non-Employee Directors for
such number of shares, at such option price, and subject to the terms and
provisions of this Plan. The date on which the grant of an option is authorized
by the Board shall be the effective date of grant for all purposes,
notwithstanding the fact that written acceptance by the Optionee of such grant
may take place thereafter.
8. Terms and Conditions of Options.
All options granted under this Plan shall be evidenced by a written
Stock Option Agreement (which may incorporate the provisions of this Plan by
reference and which shall be in such form as the Board shall approve) signed by
the President of the Company and the Optionee. All options shall be granted
subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share with respect to each
option shall not be less than the Fair Market Value of a share of
Common Stock on the date of grant.
(b) Fair Market Value. The term "Fair Market Value" as used herein as
of any date and in respect of any share of Common Stock means the
closing sale price for a share of Common Stock on the immediately
preceding trading date as reported on The Nasdaq National Market
or, if no closing sale price shall have been made on such
relevant date, on the next preceding day on which there was a
closing sale price; provided, however, that if no closing sale
3
<PAGE>
price shall have been made within the ten business days preceding
such relevant date, or if deemed appropriate by the Board for any
other reason, the Fair Market Value of such shares of Common
Stock shall be as determined by the Board. In no event shall the
Fair Market Value of any share of Common Stock be less than its
par value.
(c) Option Term. Each option shall be granted for a term determined
from time to time by the Board, but in no event shall an option
be granted for a term of more than five years and each option is
subject to earlier termination in the event of the death or the
voluntary or involuntary termination of the Optionee as set forth
herein.
(d) Limitation on Options. Notwithstanding anything herein, the
maximum aggregate number of shares of Common Stock with respect
to which options may be granted to any person eligible therefor
under this Plan within any one calendar year is 15,000 shares.
(e) Exercise of Options. Options shall be exercisable within the
times or upon the events determined by the Board as set forth in
the grant of options; provided, however, that no option shall be
exercisable after the expiration of five years from the date the
option is granted. Upon exercise no fractional shares of Common
Stock shall be issued or transferred and no payments shall be
made in lieu of fractional shares. No shares of Common Stock
shall be issued or delivered until full payment therefor has been
made. No option may be exercised for fewer than the lesser of (i)
500 shares of Common Stock or (ii) all remaining shares of Common
Stock subject to the option.
(f) Notice of Exercise. Options may be exercised only by delivery to
the Company of a written notice and exercise agreement in a form
approved by the Board, stating the number of shares of Common
Stock being purchased, the restrictions imposed on the shares
4
<PAGE>
of Common Stock and such representations and agreements regarding
the Optionee's investment intent and access to information as may
be required by the Company to comply with applicable securities
laws, together with payment in full of the exercise price for the
number of shares of Common Stock being purchased.
(g) Payment. Payment for the shares of Common Stock may be made (i)
in cash, (ii) by surrender of shares of Common Stock having a
Fair Market Value equal to the exercise price of the option or
(iii) by any combination of the foregoing where approved by the
Board in its sole discretion; provided, however, in the event of
payment for the shares of Common Stock by method (ii) above, the
shares of Common Stock so surrendered, if originally issued to
the Optionee upon exercise of an option(s) granted by the
Company, shall have been held by the Optionee for more than six
months.
(h) Purchase for Investment. If the shares of Common Stock subject to
an option have not been registered under the Securities Act of
1933, as amended ("Securities Act"), the Board shall have the
right to require, as a condition to any exercise of the option,
such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act, including
but not limited to the representation that any and all shares of
Common Stock purchased upon exercise of the option will be
purchased for investment and not with a view to the distribution
or resale thereof and to agree that such shares will not be sold
except in accordance with such restrictions or limitations as may
be set forth in the Stock Option Agreement or as may be imposed
by law.
(i) Death or Voluntary or Involuntary Termination. In the event of
death of the Optionee or voluntary or involuntary termination of
directorship with the Company of the Optionee, such option may,
subject
5
<PAGE>
to the provisions of this Plan and any restrictions or
limitations as are determined by the Board, be exercised as to
those optioned shares in respect of which such option has not
previously been exercised, but only to the extent that such
option could be exercised by the Optionee on the date of such
death or voluntary or involuntary termination of directorship
with the Company (whichever is the applicable case):
i) in the event of the death of the Optionee, then by his
or her executor or administrator, or by the person or
persons to whom the option is transferred by will or
the applicable laws of descent and distribution, within
twelve months from the date of death, but in no event
subsequent to the expiration date of the option; or
ii) in the event of the Optionee's voluntary or involuntary
termination of directorship with the Company, then by
the Optionee within twelve months from the date of
termination, but in no event subsequent to the
expiration date of the option.
9. Privileges of Stock Ownership.
No Optionee shall have any of the rights of a shareholder with respect
to any shares of Common Stock subject to an option until the option has been
validly exercised. No adjustment shall be made for dividends or distributions or
other rights for which the record date is prior to the date of exercise, except
as provided in this Plan.
10. Adjustment of Option Shares.
In the event that the number of outstanding shares of Common Stock is
changed by a stock dividend, stock split, reverse stock split, combination,
reclassification or similar change in the
6
<PAGE>
capital structure of the Company without consideration, the number of shares of
Common Stock available under this Plan and the number of shares of Common Stock
subject to outstanding options and the exercise price per share of such options
shall be proportionately adjusted, subject to any required action by the Board
or shareholders of the Company and compliance with applicable securities laws;
provided, however, that no certificate or scrip representing fractional shares
shall be issued upon exercise of any option and any resulting fractions of a
share of Common Stock shall be ignored.
11. Compliance with Laws.
The grant of options and the issuance of shares upon exercise of any
options shall be subject to and conditioned upon compliance with all applicable
requirements of law, including without limitation compliance with the Securities
Act, compliance with all applicable state securities laws and compliance with
the requirements of any stock exchange on which the shares may be listed. The
Company shall be under no obligation to register the shares with the Securities
and Exchange Commission or to effect compliance with the Securities Act or with
the registration or qualification requirement of any state securities laws or
stock exchange.
12. Restrictions on Shares.
At the discretion of the Board, the Company may reserve to itself or
its assignee(s) in the Stock Option Agreement (a) a right of first refusal to
purchase any shares of Common Stock that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and (b) a right to
repurchase any or all shares of Common Stock held by an Optionee upon the
Optionee's termination of directorship with the Company for any reason within a
specified time as determined by the Board at the time of grant at (i) the
Optionee's original purchase price, (ii) the Fair Market Value of such shares of
Common Stock as determined by the Board in good faith or (iii) a price
determined by a provision set forth in the Stock Option Agreement.
7
<PAGE>
13. Change of Control.
Notwithstanding any contrary terms in the grant of options hereunder,
in the event of a Change of Control (as defined herein), all outstanding options
shall accelerate and become immediately fully exercisable. For purposes of this
Plan, a "Change In Control" shall mean (i) the sale or other disposition to a
person, entity or group (as such term is defined in Rule 13d-5 under the
Exchange Act) of 50% or more of the Company's consolidated assets, (ii) the
acquisition of 50% or more of the outstanding shares of Common Stock by a person
or group (as such term is defined in Rule 13d-5) or (iii) if the majority of the
Board consists of persons other than Continuing Directors (as defined herein).
The term "Continuing Director" shall mean any member of the Board on the
effective date of this Plan and any other member of the Board who shall be
recommended or elected to succeed or become a Continuing Director by a majority
of the Continuing Directors who are then members of the Board.
14. Amendment or Termination of Plan.
The Board may at any time terminate or amend this Plan in any respect
(including, but not limited to, any form of grant, agreement or instrument to be
executed pursuant to this Plan); provided, however, that shareholder approval
shall be required to be obtained by the Company if required to comply with the
listed company requirements of The Nasdaq National Market or of a national
securities exchange on which the shares of Common Stock are traded, or other
applicable provisions of state or federal law or self-regulatory agencies;
provided, further, that no amendment of this Plan may adversely affect any then
outstanding options or any unexercised portions thereof without the written
consent of the Optionee.
15. Term of Plan.
No option shall be granted pursuant to this Plan on or after December
31, 2001, but options theretofore granted may extend beyond that date and the
terms of this Plan shall continue to apply to such options and to any shares of
Common Stock acquired upon exercise thereof.
8
<PAGE>
16. Applicable Law.
The validity, interpretation and enforcement of this Plan shall be
governed in all respects by the laws of the State of Florida and the United
States of America.
17. Issuance of Shares.
The shares of Common Stock, when issued and paid for pursuant to the
options granted hereunder, shall be issued as fully paid and non-assessable
shares.
18. Withholding Taxes.
Whenever under this Plan shares are to be issued in satisfaction of
the exercise of options granted thereunder, the Company shall have the right to
require the recipient to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares.
19. Transferability of Options.
An option may be sold, pledged, assigned, hypothecated, transferred or
disposed of as determined by the Board and as set forth in a Stock Option
Agreement with an Optionee.
9
Exhibit 11
Novoste Corporation
Computation of Net Loss Per Share
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
-------------------- --------------------- --------------------
<S> <C> <C> <C>
Weighted average number of shares of common
stock outstanding during the year 6,543,129 3,679,361 2,836,896
Effect of common stock issued and stock options
and warrants granted during the 12-month
period preceding April 11, 1996 294,542 1,194,411 1,194,411
Elimination of duplicative effect of including
the same shares in both above amounts (89,179) (202,625) -
-------------------- --------------------- --------------------
Total common and common equivalent shares 6,748,492 4,671,147 4,031,307
==================== ===================== ====================
Net loss (5,939,081) (3,218,026) (2,195,689)
==================== ===================== ====================
Net loss per share $ (0.88) $ (0.69) $ (0.54)
==================== ==================== ====================
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-12717) pertaining to the Novoste Corporation Stock Option Plan of
our report dated February 1, 1997, with respect to the financial statements of
Novoste Corporation included in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
ERNST & YOUNG LLP
Atlanta, Georgia
March 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,954,827
<SECURITIES> 7,588,693
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,669,869
<PP&E> 1,731,312
<DEPRECIATION> (603,281)
<TOTAL-ASSETS> 29,254,938
<CURRENT-LIABILITIES> 821,121
<BONDS> 0
0
0
<COMMON> 82,580
<OTHER-SE> 28,351,237
<TOTAL-LIABILITY-AND-EQUITY> 29,254,938
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (6,802,541)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 863,460
<INCOME-PRETAX> (5,939,081)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,939,081)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,939,081)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
